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

The most relevant measures of a firm's efficiency with respect to earnings are profit margin, ROA (Return on Assets), ROE (Return on Equity), and payout ratio. Profit margin provides a measure of how effectively a firm is generating profits from its sales, while ROA and ROE can provide insight into a firm's ability to generate returns for its investors. The payout ratio is the proportion of earnings that is paid out as dividends to shareholders, indicating how much of the company's profits are being shared with investors. Market-to-book and P/E ratio are also important financial ratios, but they are more commonly used as measures of a firm's valuation rather than its efficiency with respect to earnings. Therefore, choice C is the best answer.

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