Measures of a firm's efficiency with respect to earnings include:
A)Profit margin, ROA, P/E ratio, ROE
B)Market-to-book, ROE, Payout ratio
C)Profit margin, ROA, ROE, Payout ratio
D)ROA, ROE, P/E ratio, Payout ratio

Question

Quizplus · Accepted Answer

Profit margin, ROA (return on assets), ROE (return on equity), and payout ratio are all measures that can be used to evaluate a firm's earnings efficiency. Market-to-book and P/E ratio do not directly measure a firm's efficiency with respect to earnings. Therefore, options A and B are incorrect. Option D is also incorrect because it only includes two measures of efficiency, and it does not include the important measure of profit margin. Choice C is the best answer as it includes all relevant measures of earnings efficiency.

Measures of a Firm's Efficiency with Respect to Earnings Include