The Rate of Return on Assets Indicates

question 183

Multiple Choice

The rate of return on assets indicates:

• A) The margin of safety provided to creditors.
• B) The extent of "trading on the equity" or financial leverage.
• C) Profitability without regard to how resources are financed.
• D) The effectiveness of employing resources provided by owners.

Calculate markup percentage and determine its impact on product pricing.

Understand the role of variable and fixed costs in decision-making.

Apply activity-based costing to calculate overhead and its impact on pricing.

Interpret financial data to make pricing decisions.

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Definitions:

Operating Leverage

The extent to which fixed costs are used in a firm’s operations. If a high percentage of a firm’s total costs are fixed costs, then the firm is said to have a high degree of operating leverage. Operating leverage is a measure of one element of business risk, but does not include the second major element, sales variability.

EPS

Earnings Per Share, a key financial indicator used to measure a company's profitability on a per-share basis, reflecting the portion of a company's profit allocated to each outstanding share of common stock.

MM Model

The Modigliani and Miller theory, which proposes that under certain conditions, the value of a firm is unaffected by its capital structure.

Corporate Taxes

Taxes imposed on the income or profit of corporations.