Which of the following statements is most correct?
A) Larger values of the equity multiplier imply a greater use of leverage by the firm.
B) The receivables turnover is computed by dividing year-end accounts payable by the year-end accounts receivables.
C) The operating return on assets is computed as the earnings after interest and taxes divided by total assets.
D) The quick ratio is computed by dividing current liabilities by owners' equity.

Question

Quizplus · Accepted Answer

The equity multiplier is calculated by dividing total assets by stockholders' equity. A higher value of equity multiplier means that the firm is generating more assets per unit of equity. Thus, a larger value of the equity multiplier indicates that the company is using more leverage to finance its assets.

Which of the Following Statements Is Most Correct