Question

47.

Which ratio is the best indicator of Capital?

		Gross margin.
		Inventory holding period.
		Return on equity.
		Average collection period.

50.

The purpose of a collection policy is to:

		Outline the plan for the approval of new accounts
		Outline the plan for the orderly liquidation of receivables.
		Identify risky accounts.
		All of the above

Answer 1

1. Option (c) is correct

Return on equity is the best indicator of capital. Return on equity measures the rate of return earned by equity. It shows how effectively the capital of the company is being managed. It is calcuated by:

Return on equity = Net income / Avearge equity * 100

Option (a) is incorrect as gross margin indicates profitability

Option (b) and (c) are incorrect as inventory holding period and avearge collection period shows how effectively inventory and payables are being managed.

2. Option (d) is correct

All the statements given above are correct. All the given choices ae purposes of collection policy.