A quality of earnings ratio higher than one is an indicator of which of the following?
A) That a company has too many fixed assets.
B) That fixed assets are the company's most important resources.
C) A company's high debt position.
D) That a company has cash generated by operations higher than the amount of profit.

Question

Quizplus · Accepted Answer

A quality of earnings ratio higher than one indicates that a company's cash generated by operations is higher than its reported profits. It suggests that a company's earnings are of high quality, as cash is a more reliable indicator of a company's financial health than reported profits, which can be inflated by accounting practices. Therefore, choice D is the best answer.

A Quality of Earnings Ratio Higher Than One Is an Indicator