Question

If the CEO of a large, diversified, firm were filling out a fitness report on a division manager (i.e., "grading" the manager), which of the following situations would be likely to cause the manager to receive a better grade? In all cases, assume that other things are held constant.
a. The division’s basic earning power ratio is above the average of other firms in its industry.
b. The division’s total assets turnover ratio is below the average for other firms in its industry.
c. The division’s total debt to total capital ratio is above the average for other firms in the industry.
d. The division’s inventory turnover is 6×, whereas the average for its competitors is 8×.
e. The division’s DSO (days’ sales outstanding) is 40 days, whereas the average for its competitors is 30 days.

Answer 1

Answer:

a. The division’s basic earning power ratio is above the average of other firms in its industry.

Explanation:

All the rest of the option in the question results in less efficiency of the company's division. In order to achieve a better grade Option A is the only choice.