The Accounting Rate of Return Is Not a True Return

question 73

True/False

The accounting rate of return is not a true return because it simply averages numbers from a firm's balance sheet and income statement.

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Definitions:

Required Return

The minimum return an investor expects to achieve by investing in a particular asset, considering its risk level.

Cost of Equity

This refers to the return a company is expected to offer investors to compensate for the risk they take by holding its stock.

ABC Approach

A methodology used in inventory management and cost accounting that identifies and classifies items in order of importance, with A items being the most valuable.

Inventory Management

The process of ordering, storing, and using a company's inventory, including the management of raw materials, components, and finished products.