The Price-Recovery Component of the Change in Operating Income Measures

question 26

True/False

The price-recovery component of the change in operating income measures solely the effect of price changes on revenues but not costs.

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Definitions:

Residual Income

The amount of income that an entity has after all personal debts and expenses have been paid, often used in personal finance, or an approach to measure a department's or investment's profitability after charging cost of capital.

Invested Capital

The cumulative sum of funds invested by stockholders and creditors into a firm for long-term purposes.

Interest Rate

The amount charged by a lender to a borrower for the use of assets, usually expressed as a percentage of the principal.

Asset Turnover

A ratio that calculates how effectively a company utilizes its assets to produce sales income.