COST ACCOUNTING
PERFORMANCE MEASUREMENT
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]


has no net working capital.


also has a current ratio of 15.


has an equity multiplier of 2.


has no debt of any kind.

Detailed explanation1: also has a current ratio of 15. has no net working capital. If a firm produces a return on assets of 15 percent and also a return on equity of 15 percent, then the firm: has no debt of any kind. is using its assets as efficiently as possible.
Detailed explanation2: Return on Equity is a profitability metric used to compare the profits earned by a business to the value of its shareholdersâ€™ equity. ROE is calculated as Net Income divided by Shareholders Equity and is presented as a percentage. A 15% ROE indicates that the corporation earns $15 on every $100 of its share capital.
Detailed explanation3: If a company produces a return on assets of 14 percent and also a return on equity of 14 percent, then the firm: may have shortterm, but not longterm debt.
Detailed explanation4: If a firm produces a 13 percent return on assets and also a 13 percent return on equity, then the firm:May have shortterm, but not longterm debt.
Detailed explanation5: Return on equity will be higher than return on assets if there is higher amounts of debt in the capital structure. A current ratio of 2 to 1 is always acceptable for a company in any industry. Asset utilization ratios can be used to measure the effectiveness of a firmâ€™s managers.