Question

Which of the following is a financial strength ratio? A. Profit Margin B. Gross margin C....

Which of the following is a financial strength ratio?

A. Profit Margin

B. Gross margin

C. Debit/ Equity

D. None of the Above

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Answer #1

The answer is D. None of the above.

Profit margin (Net profit margin) and gross margin are profitability ratios.

Profit margin = Net profit/Net sales

Gross margin =Gross profit / Net sales

And in option C it is given Debit/Equity. The ratio given is also not correct.

Debt / equity is a financial strength ratio and not Debit/equity. Financial strength ratios measure company's financial strength and position.

Debt/ Equity = Total liabilities / Equity

Therefore the answer is D. None of the above.

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