Accounting Chapter 17

A company having earnings per share of $5.67 is more profitable than a company having earnings per share of $4.32.

• True
• False

A company has set its gross margin benchmark at 40% to 42%. An increase in the ratio from 38% to 39% is a positive trend.

• True
• False

An accounts receivable ratio above the target range may indicate that Three Green is too liberal in extending credit to its customers.

• True
• False

Investors are willing to pay a higher P/E ratio for growth stocks than for income stocks.

• True
• False

Managers who want to control operating expenses will be more interested in the operating margin than the total operating expense ratio.

• True
• False

The ratio that measures the relationship between cash and current assets is the quick ratio.

• True
• False

Modifying a benchmark is an option for a business that fails to achieve its benchmark.

• True
• False

The gross profit margin gives investors the best indication of how effectively a business is earning a profit from its normal business operations.

• True
• False

Alpha Company’s benchmark total operating expense ratio is between 32.0% and 34.0%. A decline in its operating expense ratio from 33.1% to 32.2% is a favorable trend.

• True
• False

A business with operating expenses that exceed its benchmark should always begin by reducing the number of employees, the largest operating expense for most businesses.

• True
• False