Which of the following statements regarding ratios is true?
A) All other things equal, a lower debt-to-assets ratio indicates a riskier financing strategy.
B) A lower asset turnover ratio is a positive indicator of the efficiency of a company.
C) The net profit margin ratio cannot be used to indicate how well a company is controlling its expenses.
D) Ratios can be useful in the attempt to measure key relationships within a business.

Question

Quizplus · Accepted Answer

Ratios can be useful in measuring key relationships within a business, such as profitability, liquidity, and efficiency. Option A is incorrect because a lower debt-to-assets ratio typically indicates a less risky financing strategy, as there is less debt relative to assets. Option B is incorrect because a higher asset turnover ratio is typically a positive indicator of efficiency, as it indicates the company is generating more revenue from its assets. Option C is incorrect because the net profit margin ratio is specifically designed to indicate how well a company is controlling its expenses, among other factors.

Which of the Following Statements Regarding Ratios Is True