Two Companies Have the Same Sales Revenue for the Year

question 26

Multiple Choice

Two companies have the same sales revenue for the year which equalled $22,550,000. Co. A has average total assets of $10,560,000 and current liabilities of $1,200,000. Co. B has average long-term liabilities of $3,750,000 in total shareholder equity of $5,610,000. When examining how well a company uses its assets

• A) Co. B. is 2.4 times more efficient than Co. A
• B) The data provided are insufficient to make a reliable comparison
• C) Co. A. is as efficient as Co. B
• D) Co. B. is more efficient than Co. A. by 12%
• E) Co. A. is 3x more efficient than Co. B

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Definitions:

Operating Leverage

The ratio of fixed costs to total costs. The higher a firm’s operating leverage, the greater will be the variability of profits for a given change in sales.

Income Tax

A tax levied by governments on individuals or entities based on their income or profits.

Reward System

Programs and strategies to recognize and compensate employees for their performance and contribution to the organization.

Performance Measures

Metrics used to evaluate the efficiency, effectiveness, and performance of an organization's activities or employees.