QUESTION 7: The retention ratio and the payout ratio are both irrelevant for publicly traded companies...
QUESTION 7: The retention ratio and the payout ratio
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are both irrelevant for publicly traded companies |
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must equal 1 (100%) when added together |
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determine the total asset turnover |
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are based on the liquidity of the firm |
QUESTION 8: Which of these is purely a performance ratio?
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cash ratio |
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quick ratio |
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current ratio |
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total asset turnover |
Homework Answers
1. Option (b) is correct
The retention ratio and the payout ratio must equal (100%) when added together. Retention ratio indicates the percentage of profits retained in the business while payout ratio indicates the percentage of profits paid as dividends.
2. Option (d) is correct
Total asset turnover ratio is a performance ratio. It indicates how effectively the assets are being utilized to generate sales.
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