What Is the Advantage of Using Operating Income or EBIT

question 50

Multiple Choice

What is the advantage of using operating income or EBIT as a measure of performance in a profit center of a multinational corporation?

• A)It is much easier to calculate than other measures.
• B)It is the only measure available to the senior management of the parent company.
• C)It excludes interest and taxes,which are beyond the manager's control.
• D)Divisional managers will maximize output if this measure is used for management control.

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Definitions:

Book Value

The net value of a company's assets found on its balance sheet, calculated as total assets minus intangible assets and liabilities.

Goodwill

An intangible asset that arises when a business is acquired for more than the fair value of its net assets, reflecting the value of the business's brand, customer relationships, and other unquantifiable assets.

Equity Method

An accounting technique used to record investments in which the investor has significant influence over the investee, typically involving adjusting the value of the investment over time to reflect shared profits or losses.

Equity Method

An accounting technique used to record investments in other companies, wherein the investment is initially recorded at cost and subsequently adjusted to reflect the investor's share of the investee’s net assets and income.