The type of ratio that indicates the firm's ability to provide adequate returns in the form of dividends and share price appreciation is the ____.
A) profitability ratios
B) asset management ratios
C) liquidity ratios
D) financial leverage management ratios

Question

Quizplus · Accepted Answer

Profitability ratios, such as return on equity (ROE), indicate how effectively a company is generating profits and can provide insight into its ability to pay dividends and potentially increase share price. Asset management ratios measure how efficiently a company is utilizing its assets, liquidity ratios assess a company's ability to meet short-term obligations, and financial leverage management ratios focus on a company's debt and equity mix. While all of these ratios can provide valuable information, profitability ratios are most closely tied to a firm's ability to provide returns to shareholders.

The Type of Ratio That Indicates the Firm's Ability to Provide