In appraising a firm's profit performance:
A)Return on sales is a better indicator than return on invested capital
B)Return on capital employed is a better indicator than return on sales
C)Net margin is a better indicator than operating margin
D)Narrow measures of profit (such as after-tax net income)are better indicators than broad-based measures (such as EBITDA-earnings before interest,tax,depreciation and amortization).

Question

Quizplus · Accepted Answer

Return on capital employed takes into account the total capital invested in the firm (both equity and debt), whereas return on sales only looks at the profitability of sales. This makes return on capital employed a better indicator of the firm's overall profit performance.

In Appraising a Firm's Profit Performance