If the CEO of a large, diversified, firm were filling out a fitness report on a division manager (i.e., "grading" the manager), which of the following situations would be likely to cause the manager to receive a better grade? In all cases, assume that other things are held constant.
A) The division's basic earning power ratio is above the average of other firms in its industry.
B) The division's total assets turnover ratio is below the average for other firms in its industry.
C) The division's debt ratio is above the average for other firms in the industry.
D) The division's inventory turnover is 6, whereas the average for its competitors is 8.
E) The division's DSO (days' sales outstanding) is 40, whereas the average for its competitors is 30.

Question

Quizplus · Accepted Answer

The division's basic earning power ratio is above the average of other firms in its industry. This indicates that the division is generating more earnings than its competitors, which is a positive sign of the manager's performance.

If the CEO of a Large, Diversified, Firm Were Filling