Which of the Following Statements Provides an Accurate Description of Financial

question 210

Multiple Choice

Which of the following statements provides an accurate description of financial ratios?

• A) Liquidity ratios use information about current assets and current liabilities.
• B) Asset management ratios focus on the relationship between profits and either average inventory or total assets.
• C) Net margin and return on investment are useful leverage ratios.
• D) Inventory turnover is one method for determining the company's financial liquidity.
• E) Leverage ratios are helpful in assessing how well assets are employed in generating sales.

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Definitions:

Output Units

Refers to the quantity of goods or services produced within a given time frame.

Average Total Cost

The per-unit production cost, calculated by dividing the overall production cost by the number of units produced.

Profit

The financial gain achieved when the revenue from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity.

Marginal Cost

The additional cost incurred by producing one more unit of a product or service, important for decision-making in pricing and production levels.