Which of the following best indicates the earning power of a project?

• A. Inventory Turnover
• B. Net Sales
• C. Gross Purchases
• D. Total Liabilities

Answer: (B)

Verified step by step guidance

1. Understand the concept of 'earning power': Earning power refers to the ability of a project or business to generate income or profit over time. It is typically measured by metrics that reflect revenue or profitability.
2. Analyze the options provided: Inventory Turnover, Net Sales, Gross Purchases, and Total Liabilities. Consider which metric directly relates to the income-generating ability of a project.
3. Inventory Turnover measures how efficiently inventory is sold and replaced. While it is important for operational efficiency, it does not directly indicate earning power.
4. Gross Purchases represent the total amount spent on acquiring goods or services. This is an expense metric and does not directly reflect income generation.
5. Net Sales represent the total revenue generated from selling goods or services after deducting returns, allowances, and discounts. This is the most direct indicator of earning power among the options provided.