A firm's business risk is measured by the variability in which one of the following over time:
A) net sales
B) total assets
C) operating income (EBIT)
D) net income

Question

Quizplus · Accepted Answer

A firm's business risk is measured by the variability in operating income (EBIT) over time because it represents the amount of income generated from the firm's primary operations, which can be affected by various factors such as competition, market demand, and cost of production. Variability in net sales or total assets may not necessarily reflect changes in the firm's operating performance, while net income can be affected by factors such as financing costs and taxes, which are not directly related to the firm's operations.

A Firm's Business Risk Is Measured by the Variability in Which