Accounting Chapter 17

A company having earnings per share of $7.67 is more profitable than a company having earnings per share of $5.32.

• True

• False

A company has set its gross margin target range at 38% to 40%. An increase in the ratio from 36% to 37% is a positive trend.

• True

• False

An accounts receivable ratio above the target range may indicate that ThreeGreen 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 target range for its total operating expense ratio is between 32.0% and 34.0%. A decline in its operating expense ratio thus, from 35.1% to 34.2% is a favorable trend.

• True

• False

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

• True

• False