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.

Question

Quizplus · Accepted Answer

The CEO would likely give the division manager a better grade if the division's basic earning power ratio is above the average of other firms in its industry. This measure indicates the efficiency with which the division is using its assets to generate operating income, which is a key performance indicator for any manager. The other options suggest that the division is underperforming compared to its peers, which would likely result in a lower grade.

If the CEO of a Large, Diversified Firm Were Filling