Which of the following transactions increases the quality of income ratio?
A decrease in receivables is the correct answer.
What is the quality of income ratio?
The quality of income ratio is defined as the proportion of cash flow from operations to net income. The formula for the quality of income ratio is: A ratio of greater than 1.0 usually indicates high-quality income, while a ratio of less than 1.0 indicates low-quality.
What affects the quality of earnings?
Following factors are affecting to the quality of earnings: Non-Operating Expenses: Non-operating expenses like interest paid on a personal loan, onetime expenses like purchase of small equipment, repairs to machinery which are non-regular in nature etc., affects the quality of earnings and to be added back.
What does a decrease in fixed asset turnover mean?
A low fixed asset turnover ratio indicates that a business is over-invested in fixed assets. A low ratio may also indicate that a business needs to issue new products to revive its sales. Alternatively, it may have made a large investment in fixed assets, with a time delay before the new assets start to generate sales.