Adv Accounting Ch 17 (1)

Operating margin is also referred to as

• rate of return on sales

• operating income

• gross margin

• earnings per share

The price-earnings ratio is an example of a

• solvency ratio

• profitability ratio

• liquidity ratio

• market ratio

To rate the ability of a business to pay its current and long-term liabilities, investors use

• solvency ratios

• profitability ratios

• liquidity ratios

• market ratios

Gross margin can be increased by

• selling more merchandise.

• buying less merchandise.

• increasing unit sales prices.

• reducing operating expenses.

Vertical analysis ratios are an example of a

• solvency ratio.

• profitability ratio.

• liquidity ratio.

• market ratio

The least likely factor a business will use to determine a benchmark is

• government economic standards.

• actual ratios from the prior year.

• industry standards.

• its business plan.

The ratio that gives the best indication of how effectively a business is earning a profit from its normal business operations is the

• debt ratio.

• rate of return on sales.

• gross margin.

• operating margin.

The debt ratio is an example of a

• solvency ratio.

• profitability ratio.

• liquidity ratio.

• market ratio.

Gross margin is also referred to as

• operating margin.

• gross profit margin.

• rate of return on sales.

• earnings per share.

A company’s cost of merchandise sold increased by 6.7% over the prior year. Management

• considers this to be an unfavorable trend.

• cannot evaluate this change without knowing the change in sales.

• should reduce the amount of merchandise purchased during the next year.

• should reduce operating costs to maintain a constant operating margin.