When a Company Measures Performance Using Economic Profit, Managers Tend

question 107

True/False

When a company measures performance using economic profit, managers tend to invest in any project earning more than the cost of capital and, thus, raise the firm's total profits.

Recognize the different accounting methods for short-term and long-term investments and their reporting requirements under both GAAP and IFRS.

Calculate and journalize the gains, losses, dividends received, and interest income from investments.

Understand the rationale behind companies' investment decisions, including for excess cash management or strategic reasons.

Distinguish between realized and unrealized gains and losses and their treatment for different types of investments.

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Definitions:

Dividend Yield Ratio

A financial metric that shows how much a company pays out in dividends each year relative to its stock price.

Earnings per Share

A company's net profit divided by the number of its outstanding shares, indicating the profitability on a per-share basis.

Dividend Payout Ratio

The portion of net income distributed to shareholders in the form of dividends, expressed as a percentage of the company's total net income.

Book Value per Share

A financial measure that indicates the theoretical value per share of a company if it were to liquidate, calculated by dividing total equity by the number of outstanding shares.