Which of the following statements is CORRECT? a. The advantage of the basic earning power ratio (BEP) over the return on total assets for judging a company's operating efficiency is that the BEP does not reflect the effects of debt and taxes. b. The price/earnings (P/E) ratio tells us how much investors are willing to pay for a dollar of current earnings. In general, investors regard companies with higher P/E ratios as being more risky and/or less likely to enjoy higher future growth. c. Other things held constant, the less debt a firm uses, the lower its return on total assets will be. d. Suppose you are analyzing two firms in the same industry. Firm A has a profit margin of 10% versus a margin of 8% for Firm B. Firm A's total debt to total capital ratio is 70% versus 20% for Firm B. Based only on these two facts, you cannot reach a conclusion as to which firm is better managed, because the difference in debt, not better management, could be the cause of Firm A's higher profit margin.

Question

10-06-2020
Business

contestada

Which of the following statements is CORRECT? a. The advantage of the basic earning power ratio (BEP) over the return on total assets for judging a company's operating efficiency is that the BEP does not reflect the effects of debt and taxes. b. The price/earnings (P/E) ratio tells us how much investors are willing to pay for a dollar of current earnings. In general, investors regard companies with higher P/E ratios as being more risky and/or less likely to enjoy higher future growth. c. Other things held constant, the less debt a firm uses, the lower its return on total assets will be. d. Suppose you are analyzing two firms in the same industry. Firm A has a profit margin of 10% versus a margin of 8% for Firm B. Firm A's total debt to total capital ratio is 70% versus 20% for Firm B. Based only on these two facts, you cannot reach a conclusion as to which firm is better managed, because the difference in debt, not better management, could be the cause of Firm A's higher profit margin.

Respuesta :

Otras preguntas

Which of these actions has contributed to the increase of greenhouse gases in the atmosphere? a. burning wood b. clearing forests c. excessive planting d. l

Joe made a rectangular garden the perimeter of the garden is 27ft and area is 35ft^2 find the length and with of garden

The graph shown below expresses a radical function that can be written in the form f(x) = a(x + k)^1/n + c. What does the graph tell you about the value of a in

What is not a major field in psychology?

simplify 4 (-3)-2x(-6)

Carlos received 84 votes. That was 3 of every 7 votes cast in the class president election. How many votes were cast?

What does Měi gèrén dōu rènwéi kēxué shì hǔnluàn de, nàme tā bùshì! Nǐ yào zuò de jiùshì yòng nǐ de ěrduǒ hé yǎnjīng qīngtīng, nǐ huì zài rènhé shíjiān chéngwé

Which of the following fractions is equivalent to 0.45? 4/5 2/5 9/20 9/200

The graph shown below expresses a radical function that can be written in the form f(x) = a(x + k)^1/n + c. What does the graph tell you about the value of a in

Which of these items is not a wedge? a. axe b. knife c. ramp d. ice pick user: how can the mechanical advantage of an inclined plane be expressed as a ratio

topeadeniran2 topeadeniran2 · Answer 1 · 2020-06-14T03:30:13+02:00

Answer: The advantage of the basic earning power ratio (BEP) over the return on total assets for judging a company's operating efficiency is that the BEP does not reflect the effects of debt and taxes

Explanation:

a. This is correct.

The advantage of basic earning power ratio over the return on the total assets for judging a firm's operating efficiency is that the basic earning power does not reflect effects of debt and taxes.

b. This is incorrect.

Only the price/earnings ratio of the company will tell us nothing about a company. When we compare the price/earnings of a company with the peers, we would know whether such company is under valued, or over valued or maybe fairly valued.

c. This is incorrect.

The total assets is made up of total liabilities plus the shareholders equity, when other things are held constant, less debt simply means less liabilities. To balance both sides, the total assets should reduce as the shareholder's equity is constant. When total assets decreases, the return on the assets will increase.

d. This is incorrect.

We can reach a conclusion on which firm is better managed based on the facts given. The debt ratio is the total liabilities divided by total assets, and a lower ratio is known to be good in comparison to a higher ratio. Similarly, the profit margin is the profit divided by the sales, and low profit margin shows high expenses and also a need for the management to decrease the expense.