Scandals involving Enron and WorldCom drew heightened attention to the possibility that financial statements might be misreported to portray a favorable impression of a company's financial results.Which of the following false impressions could be suggested by the ratio indicated?
A)Greater control of expenses might be suggested by the net profit margin ratio.
B)Greater efficiency in asset use might be suggested by the debt-to-assets ratio.
C)Greater control of expenses might be suggested by the debt-to-assets ratio.
D)Less financing risk might be suggested by the asset turnover ratio.

Question

Quizplus · Accepted Answer

The net profit margin ratio measures a company's profitability by dividing the net profit by its total revenue. A higher ratio indicates that a company is better controlling its expenses and generating profits. However, this ratio can be manipulated by misreporting expenses or revenue, leading to a false impression of control over expenses.

Scandals Involving Enron and WorldCom Drew Heightened Attention to the Possibility