Indicate the Effect of the Following Transactions On

question 12

Essay

Indicate the effect of the following transactions on:

i. Return on net operating assets (RNOA)
ii. Return on common shareholders' equity (ROCE)
iii. Earnings per share (basic)

Consider each transaction independently and explain your answer. Assume that ROCE is higher than RNOA.

1. Company issues more preferred stock and uses proceeds to reduce accounts payable.
2. Company has a stock split.
3. Company converts to just-in-time inventory system (JIT). This allows them to hold half the levels of inventory for the same amount of sales (sales themselves are not increased by this change to JIT).

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Definitions:

Corporate Level

Pertains to high-level strategic decisions and policies that affect the entire organization, rather than specific divisions or operational issues.

Strategic Business Unit

A semi-autonomous division or unit within a company that focuses on a specific market or product line, with its own strategy and objectives.

Board of Directors

A group of individuals elected to represent shareholders and govern the activities of a corporation.

Government Agencies

Official organizations operated by the government to implement laws, provide services, and oversee various areas of public interest and policy.