What Is Primarily Responsible for the Potential Distortion Among the ROA

question 91

Multiple Choice

What is primarily responsible for the potential distortion among the ROA of different firms when net income is used in the numerator of ROA?

• A) Firms have different dividend payout ratios.
• B) Some firms use fully depreciated assets.
• C) Financial leverage varies among firms.
• D) Unprofitable firms will not have any tax liability.

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Definitions:

Interest Charges

The charge applied by a lender on a borrower for asset utilization, indicated as a percentage of the principal value.

CCC (Cash Conversion Cycle)

A gauge determining how long a company takes to convert investments in stock and other resources into cash flows from sales operations.

Working Capital Management

The management of a company’s short-term assets and liabilities to ensure its continued operation and maximize financial efficiency.

Inventory Management

The supervisory process focusing on ordering, storing, using, and selling a company's inventory.