Which of the Following Ratios Is Most Useful in Evaluating

question 141

Multiple Choice

Which of the following ratios is most useful in evaluating liquidity?

• A)Acid-test ratio.
• B)Return on equity.
• C)Profit margin ratio.

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Definitions:

Net Operating Income

The profit generated from a company's core business operations, excluding expenses and revenues from non-operating activities.

LIFO

Last In, First Out, an inventory valuation method where the most recently produced items are recorded as sold first.

Absorption Costing

A method of accounting in which all the costs associated with the production of a product are absorbed by that product. This includes direct costs like materials and labor, as well as fixed and variable overhead.

Variable Costing

An accounting method that only includes variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product costs.