When considering how profitably your company is operating, you examine:
a) inventory turnover.
b) sales and the return on your investment.
c) depreciation and liquidity.
d) tangible and intangible assets.
e) the price of the Canadian dollar.
I think the answer should be b = sales and return on investment since return on equity is a profitability ratio. However, it the marksheet shows the answer to be d, I am not sure if this is an error or not.
To determine which option is correct, we need to understand how profitability is typically measured and assessed. Profitability is the ability of a company to generate earnings relative to its expenses and costs.
Option a) Inventory turnover: While inventory turnover is an important metric for measuring operational efficiency, it is not directly related to profitability. It measures how quickly a company is selling its inventory, but it doesn't directly assess the company's profitability.
Option b) Sales and return on investment: Return on investment (ROI) is commonly used as a profitability ratio because it measures the return generated on the investments made by the company. It considers the net income generated from sales in relation to the overall investment in the business. This option seems plausible and aligns with the concept of profitability.
Option c) Depreciation and liquidity: Depreciation is the allocation of the cost of tangible assets over their useful life. While depreciation affects profitability indirectly by reducing taxable income, it is not considered a primary measure of profitability. Liquidity, on the other hand, relates to the availability of cash and the ability to meet short-term obligations, which is not directly tied to determining profitability.
Option d) Tangible and intangible assets: While assets play a role in determining a company's profitability, focusing solely on assets does not provide a complete picture. Assets are important in generating revenue, but they do not directly measure profitability.
Option e) The price of the Canadian dollar: The price of the Canadian dollar is a factor that can have an impact on a company's profitability, particularly if the company operates internationally or has business transactions involving the Canadian dollar. However, it is not a direct measure or indicator of profitability.
Based on the explanations above, option b) "Sales and return on investment" appears to be a more relevant measure for assessing profitability. However, if the marksheet indicates option d), it is possible that the question is specifically looking for the analysis of tangible and intangible assets in relation to profitability, which is less common but still valid in certain contexts.
If you have access to the question itself or any additional instructions, it might provide further clarification on why option d) is considered the correct answer.