Question

What are two commonly used measures of operating capability?

Select one:

a. Current ratio and quick ratio.

b. Inventory turnover and the accounts receivable turnover.

c. Debt ratio and equity ratio.

d. Return on Assets and Return on Equity.

e. Gross profit margin and profit margin.

Answer 1

OPTION B------ Inventory turnover and Accounts receivable turnover

Both are measure of company's financial and operational performance.

Accounts receivable turnover ratio measures how much company is efficient in collecting the money owed by customers. A high ratio is preferred since it indicates company's collection of accounts receivable is efficient.

Inventory turnover ratio reflects how many times a company has sold and replaced inventory in given period. Higher ratio is preferred since it indicates that company is selling its goods quickly which shows the operating capability of company.