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Which of the following is not a profitability ratio?

a. Earnings per share
b. Dividend yield
c. None of the other alternatives are correct
d. Return on sales
e. Equity ratio

1 Answer

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Final answer:

The equity ratio is not a profitability ratio; instead, it measures financial leverage. Profitability ratios like earnings per share and return on sales assess profit generation, whereas the dividend yield relates to cash payments to shareholders.

Step-by-step explanation:

To determine which of the following is not a profitability ratio, we need to understand what a profitability ratio is. Profitability ratios are financial metrics used to assess a business's ability to generate profit relative to its revenue, operating costs, balance sheet assets, or shareholders' equity during a specific period.

Looking at the options:

  • Earnings per share (EPS) is a profitability ratio that measures the profit allocated to each outstanding share of a company's common stock.
  • Dividend yield is not a measure of profitability; rather, it indicates the amount of cash dividends declared or paid out to shareholders relative to the share price.
  • Option c (None of the other alternatives are correct) is not applicable, as we are identifying the non-profitability ratio.
  • Return on sales (ROS) is a ratio used to evaluate a company's operational efficiency by comparing net income to total sales.
  • The equity ratio, on the other hand, is a financial ratio indicating the relative proportion of equity used to finance a company's assets. Rather than measuring profitability, it measures financial leverage.

Based on the definitions, the answer is e. Equity ratio, as it is not a profitability ratio.

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