The ratio of __________ to __________ is an example of a __________ ratio.
A. quick assets; current liabilities; leverage
B. cost of goods sold; total assets; asset utilization
C. net credit sales; average owner's equity; leverage
D. net income after taxes; net sales; profit
D
To determine the correct answer, we need to understand what each variable represents and how it relates to the concept of ratio.
In option A, the ratio of quick assets to current liabilities represents leverage. Quick assets refer to assets that can be easily converted into cash, like cash, accounts receivable, and short-term investments. Current liabilities are debts or obligations that are due within one year. The ratio of quick assets to current liabilities is commonly used to assess a company's ability to meet its short-term obligations.
In option B, the ratio of cost of goods sold to total assets represents asset utilization. The cost of goods sold represents the expenses directly associated with producing or acquiring the goods a company sells. Total assets include all the resources a company owns, such as cash, inventory, property, and equipment. The ratio of cost of goods sold to total assets can indicate how efficiently a company is utilizing its assets to generate revenue.
In option C, the ratio of net credit sales to average owner's equity represents leverage. Net credit sales represent the total sales made on credit (sales not paid for immediately) after deducting sales returns and allowances. Average owner's equity is calculated by averaging the beginning and ending owner's equity over a specific period. This ratio measures the extent to which a company relies on borrowed funds to finance its operations.
In option D, the ratio of net income after taxes to net sales represents profit. Net income after taxes is the remaining profit after deducting taxes from the total income. Net sales represent the revenue generated from the company's primary operations before any deductions. This ratio reflects the profitability of a company's sales.
Based on the explanations above, it can be concluded that the correct answer is option D. The ratio of net income after taxes to net sales is an example of a profit ratio.