Question

Which of the following ratios measures profitability and would appear in common size financial statements?

Select one:
a. Net Income/Revenues
b. Both Net Income/Total Assets and Net Income/Revenues
c. None of the other choices in this question
d. Net Income/Total Assets

Answer 1

The ratio that measures profitability in common size financial statements is Net Income/Revenues, depicting the company's efficiency in generating profits from sales.

Step-by-step explanation:

The ratio which measures profitability and would appear in common size financial statements is Net Income/Revenues. In the context of common size financial statements, this ratio is used to show the net income as a percentage of revenues, providing a clear picture of the profitability in relation to the company's sales.

Option "a. Net Income/Revenues" is thus the correct answer. It indicates what portion of revenue is left after all expenses are paid, which is essential for stakeholders to assess the company's efficiency in generating profits from sales.