If Shareholders Want to Know How Much Profit a Firm

question 103

Multiple Choice

If shareholders want to know how much profit a firm is making on their entire investment in the firm, the shareholders should look at the:

• A)profit margin.
• B)return on assets.
• C)return on equity.
• D)equity multiplier.
• E)earnings per share.

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Definitions:

Indirect Method

A method of reporting cash flows from operating activities where net income is adjusted for changes in balance sheet accounts to arrive at cash provided by or used in operating activities.

Net Income

The total profit of a company after all expenses and taxes have been deducted from total revenue, indicating the actual profit earned.

Adjusting

The act of making entries to update the financial statements to more accurately reflect revenues and expenses for a specific reporting period.

Operating Activities

The day-to-day activities of producing and selling goods and/or services, which are reflected in the cash flow statement.