When Measuring Profit and Invested Capital, Managers Have to Decide

question 89

Essay

When measuring profit and invested capital, managers have to decide how they will define what will be included in invested capital, then apply that definition consistently throughout the one organisation. Identify and explain with an example, the three definitions of invested capital that can be applied.

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Definitions:

Day-to-Day Behaviors

Regular actions or conduct exhibited by an individual on a daily basis, reflecting their habits and lifestyle.

Scientific Method

A systematic and empirical approach to research in which a problem is identified, relevant data are gathered, a hypothesis is formulated from these data, and the hypothesis is empirically tested.

Theory

A system of ideas intended to explain something, based on general principles independent of the thing to be explained.

Hypothesis

A testable prediction or explanation about a phenomenon that acts as a basis for further investigation.