The cash flow on total assets ratio:
A) Is the same as profit margin.
B) Can be an indicator of earnings quality.
C) Is highly affected by accounting principles of income recognition and measurement.
D) Is the same as return on assets.
E) Is average net assets divided by cash flows from operations.

Question

Quizplus · Accepted Answer

The cash flow on total assets ratio can be an indicator of earnings quality, as it measures a company's ability to generate cash flow from its assets. This ratio takes into account the firm's operating cash flow, which is a better measure of a company's earnings quality compared to net income, which can be affected by accounting principles. Options A, C, D, and E are all incorrect as they do not accurately describe the cash flow on total assets ratio.

The Cash Flow on Total Assets Ratio