The calculations for some profitability ratios are the same as the calculations for common-size analysis of the income statement.Which of the following profitability ratios would also be determined through a common-size analysis of the income statement?
A)Gross profit ratio
B)Debt-to-equity ratio
C)Acid-test ratio
D)Earnings per share

Question

Quizplus · Accepted Answer

The gross profit ratio can be calculated using the formula: (Gross Profit/Sales) x 100. To perform common-size analysis of the income statement, the same formula would be used to calculate the percentage of gross profit in relation to sales. Therefore, the gross profit ratio can be determined through a common-size analysis of the income statement.

B) Debt-to-equity ratio, C) Acid-test ratio, and D) Earnings per share cannot be determined through a common-size analysis of the income statement as they are not profitability ratios. Debt-to-equity ratio measures a company's leverage, acid-test ratio measures a company's liquidity, and earnings per share measures a company's profitability on a per-share basis.

The Calculations for Some Profitability Ratios Are the Same as the Calculations