What Is a Disadvantage of Using the Accounting Rate of Return

question 61

Multiple Choice

What is a disadvantage of using the accounting rate of return?

• A) It links long-term decision making to profit as the measure of success.
• B) It is easy to understand.
• C) It uses accounting measures of profit rather than cash flows.
• D) None of the above.

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Definitions:

Beginning Inventory

The value of a company's inventory at the start of an accounting period, prior to any purchases or production taking place.

Current Year

Refers to the ongoing calendar or fiscal year, often used in accounting and reporting to denote the present period.

LIFO

"Last In, First Out," an inventory valuation method where the goods purchased last are the first ones to be used or sold.

Gross Profit

The financial metric representing the difference between sales revenue and the cost of goods sold (COGS), before deducting overhead, payroll, taxes, and interest payments.