Question

Which of the following ratios compares the net income to the average total assets?

a) Return on Investment
b) Asset Turnover Ratio
c) Earnings Per Share
d) Debt to Equity Ratio

Answer 1

The Return on Investment (ROI) ratio compares the net income to the average total assets and measures the profitability of a company.

Step-by-step explanation:

The ratio that compares the net income to the average total assets is called the Return on Investment (ROI) ratio. This ratio measures the profitability of a company by showing how effectively it generates income from its assets.

ROI is calculated by dividing the net income by the average total assets. A higher ROI indicates that a company has been more successful in generating profits from its assets.

For example, if a company has a net income of $100,000 and average total assets of $1,000,000, the ROI would be 0.1 or 10%. This means that the company generated a return of 10% on its average total assets.