Correct Response: A. Of the ratios listed, the most useful ratio to evaluate whether the assets are used efficiently is the return on investment (ROI) ratio, or the net profit divided by the cost of investment expressed as a percentage: ROI = (net profit/cost of investment) x 100. This ratio will give the manager an idea of how much profit an asset is generating. Inventory turnover is number of times inventory is sold or used in a time period: inventory turnover = (cost of goods sold or net sales)/average inventory, and while useful for evaluating inventory, it doesn't apply to other assets (B). The return on equity (ROE) measures the profit generated with each dollar of shareholders' equity: ROE = (net income)/(shareholders' equity). The return on equity measure is specifically for shareholders' equity, and is not general enough to evaluate multiple assets (C). The accounts receivable turnover evaluation measures how efficiently a business turns its accounts receivable into cash. The accounts receivable ratio = (net value of credit sales)/(accounts receivable) (D).
