If a Firm Reduces the Ratio of Capital to Labor

question 223

Multiple Choice

If a firm reduces the ratio of capital to labor, it becomes more:

• A) labor intensive.
• B) output intensive.
• C) marginal intensive.
• D) capital intensive.

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Definitions:

Account Receivable

is money owed to a company by its customers for products or services that have been delivered but not yet paid for.

Current Ratio

A financial metric indicating how well a company can settle debts due within one year, determined by dividing current assets by current liabilities.

Equity Multiplier

A measure of a company's financial leverage, calculated as total assets divided by total equity, indicating how much of assets are financed by equity.

Du Pont Identity

A framework for analyzing a company's return on equity (ROE) by breaking it down into three components: operating efficiency, asset use efficiency, and financial leverage.