Which of the Following Statements Is Most Correct

question 72

Multiple Choice

Which of the following statements is most correct?

• A) An increase in a firm's debt ratio, with no changes in its sales and operating costs, could be expected to lower its profit margin on sales.
• B) An increase in the DSO, other things held constant, would generally lead to an increase in the total asset turnover ratio.
• C) An increase in the DSO, other things held constant, would generally lead to an increase in the ROE.
• D) In a competitive economy, where all firms earn similar returns on equity, one would expect to find lower profit margins for airlines, which require a lot of fixed assets relative to sales, than for fresh fish markets.
• E) It is more important to adjust the Debt/Assets ratio than the inventory turnover ratio to account for seasonal fluctuations.

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Definitions:

Finance Lease Agreement

A lease in which the lessee has control over the asset being leased and substantially all risks and rewards incidental to ownership, even though legal title may not be transferred.

Residual Value

The estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.

Implicit Interest Rate

An interest rate inferred from the cost of borrowing, or the return on investment, that is not explicitly stated.

AASB 16

The Australian Accounting Standards Board standard on leases, which outlines the principles for recognition, measurement, presentation, and disclosure of leases.