Multiple Choice
Financial ratios can be used to assess which of the following aspects of a firm's performance?
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14. Financial Statement Analysis
Introduction to Ratios
Multiple Choice
Which of the following ratios is commonly used to assess the performance of a company's stock?
A
Debt to Equity Ratio
B
Inventory Turnover Ratio
C
Earnings per Share (EPS)
D
Current Ratio
Verified step by step guidance1
Understand the purpose of the question: The goal is to identify which financial ratio is commonly used to assess the performance of a company's stock.
Review the options provided: Debt to Equity Ratio, Inventory Turnover Ratio, Earnings per Share (EPS), and Current Ratio.
Clarify the concept of Earnings per Share (EPS): EPS is a financial metric that indicates the portion of a company's profit allocated to each outstanding share of common stock. It is calculated using the formula: .
Explain why EPS is relevant: EPS is a key indicator of a company's profitability and is widely used by investors to evaluate the performance of a company's stock. Higher EPS values generally suggest better financial health and profitability.
Conclude that EPS is the correct answer: Among the options provided, Earnings per Share (EPS) is the most appropriate ratio for assessing the performance of a company's stock.
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