Which Ratios Are Not Indicators of Managerial Effectiveness?

D

All of the ratios listed can be used to assess managerial effectiveness in different ways. However, the ratio that would not be as useful for drawing conclusions about a company's managerial effectiveness is B) Price-earnings ratio.

Explanation:

A) Net margin is a profitability ratio that measures a company's net income as a percentage of its revenue. It can be used to assess how effectively a company is controlling its costs and generating profits from its operations. A high net margin indicates that the company is efficient in generating profits and effectively managing its expenses.

C) Return on equity (ROE) measures how much profit a company generates for every dollar invested by shareholders. A high ROE is an indication that the company is generating substantial returns on the capital provided by its shareholders, and therefore, is effectively using their investments.

D) Return on investment (ROI) is a profitability ratio that measures the return on an investment relative to its cost. ROI can be used to assess how effectively a company is utilizing its assets and capital to generate profits. A high ROI indicates that the company is using its resources effectively and generating healthy profits.

However, the price-earnings (P/E) ratio is a valuation ratio that compares a company's stock price to its earnings per share (EPS). It is often used by investors to determine whether a stock is undervalued or overvalued relative to its peers. The P/E ratio is more focused on the market's perception of a company's future earnings potential rather than the company's actual performance. Therefore, while it may provide some insight into investor sentiment, it is not a direct measure of managerial effectiveness.

In conclusion, all of the ratios listed can be used to assess managerial effectiveness in different ways. However, the ratio that would not be as useful for drawing conclusions about a company's managerial effectiveness is B) Price-earnings ratio.