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Fina 470 Final Discussion Q's Post-Ch.7 (3) Practice Questions and Answers $9.99   Add to cart

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Fina 470 Final Discussion Q's Post-Ch.7 (3) Practice Questions and Answers

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Fina 470 Final Discussion Q's Post-Ch.7 (3) Practice Questions and Answers How is return on invested capital used as an internal management tool? - Ans:-these returns are made up of the results achieved by individual product lines and projects, and well managed companies exercise rigorous contr...

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  • October 23, 2024
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Fina 470 Final Discussion Q's Post-Ch.7
(3) Practice Questions and Answers


How is return on invested capital used as an internal management tool? - Ans:✔✔-these returns are

made up of the results achieved by individual product lines and projects, and well managed companies

exercise rigorous control over the returns achieved by each of its profit centers, and it rewards the

managers on the basis of such results. When evaluating new investments in assets or projects, mgmt will

compute the estimated returns it expects to achieve and use these estimates as a basis for its decision


Why is return on invested capital one of the most relevant measures of company performance? How do

we use this measure in our analysis of financial statements? - Ans:✔✔-profit generation is the first and

foremost purpose of a company. the effectiveness of operating performance determines the ability of

the company to survive financially, to attract suppliers of funds, and to reward them adequately. Return

on invested capital is the prime measure of company performance. analysts use it as an indicator of

managerial effectiveness and/or a measure of the company's ability to earn a satisfactory return on

investment


Why is interest expense ignored when computing return on net operating assets (RNOA)? - Ans:✔✔-the

exclusion of interest from income deductions is due to its being regarded as a payment for the use of




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money from the suppliers of debt capital. If the investment base is defined as Net operating assets, than

Net Operating Profit After Tax (NOPAT) is used


Why is liquidity important in analysis of financial statements? Explain its importance from the view of

more than one type of user - Ans:✔✔-liquidity is an indicator of an entity's ability to meet its current

obligations. an entity in a weak short-term liquidity position will have difficulty in meeting short-term

obligations. Viewpoints:


1. Equity Investor - in this case, the company is likely unable to avail itself of favorable discounts and to

take advantage of profitable business opportunities, and could even mean loss of control an eventual

partial/total loss of capital investment


2. Creditors - in this case, delay in collection of interest and principle due would be expected and there is

a possibility of the partial or total loss of the amounts due to them


What is window-dressing of current assets and liabilities? How can we recognize whether financial

statements are window-dressed? - Ans:✔✔-"window-dressing" refers the the adjustment of year-end

account balances of current assets and liabilities to show a more favorable current ration than is

otherwise warranted.


The analyst should go beyond year-end reported amounts and try to obtain as many interim readings of

the current ratio as possible.




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