BGL Enterprises Increases Its Operating Efficiency Such That Costs Decrease

question 99

Multiple Choice

BGL Enterprises increases its operating efficiency such that costs decrease while sales remain constant.As a result, given all else constant, the:

• A)return on equity will increase.
• B)return on assets will decrease.
• C)profit margin will decline.
• D)equity multiplier will decrease.
• E)price-earnings ratio will increase.

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Definitions:

Free Cash Flow

A measure of financial performance calculated as operating cash flow minus capital expenditures, representing the cash that a company is able to generate after spending the money required to maintain or expand its asset base.

Capital Expenditures

Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment.

Cash Dividends

Payments made by a corporation to its shareholders, representing a distribution of profits.

Indirect Method

A technique used in cash flow statement preparation that adjusts net income for changes in balance sheet accounts to calculate operating cash flow.