Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Profit Margin

Financial Accounting

14. Financial Statement Analysis

Ratios: Profit Margin

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

The profitability index reflects the value created per dollar of:

investment

sales revenue

total assets

net income

Previous problemNext problem

Verified step by step guidance

Understand the concept of the profitability index: It is a financial metric used to evaluate the attractiveness of an investment or project. It measures the value created per dollar of investment, helping to determine whether a project is worth pursuing.

Recall the formula for the profitability index: \( PI = \frac{NPV}{Initial ext{ }Investment} \), where \( NPV \) is the net present value of the project and \( Initial ext{ }Investment \) is the amount invested.

Analyze the options provided: The profitability index specifically relates to the value created per dollar of investment, not sales revenue, total assets, or net income. This is because it directly compares the net present value to the initial investment.

Consider the purpose of the profitability index: It helps in ranking projects or investments, especially when capital is limited. A \( PI > 1 \) indicates that the project is expected to generate more value than the cost of the investment.

Conclude that the correct answer is 'investment,' as the profitability index is designed to measure the efficiency of capital allocation by comparing the net present value to the initial investment.