I. True/false (in your answer, first type True or False, and then explain, 1-2 l
ID: 2463284 • Letter: I
Question
I. True/false (in your answer, first type True or False, and then explain, 1-2 lines each question)(In order to obtain a ‘deeper’ understanding of a firm’s profit margin and turnover ratio of invested capital, it is useful to decompose the financial ratios by performing an index analysis only.
Return on equity informs about the overall profitability of operations
The turnover ratio of invested capital informs about the overall profitability of operations
a) What were the accrual-based earnings for Period 2?
b) What was the cash flow generated in Period 2?
c) Calculate a traditional cash flow statement based on the seven transactions.
2.Suppose now x=1600
Does your answer above change for a), b), and c). If not, why? If yes, show how it changes. a) What were the accrual-based earnings for Period 2?
b) What was the cash flow generated in Period 2?
c) Calculate a traditional cash flow statement based on the seven transactions.
2.Suppose now x=1600
Does your answer above change for a), b), and c). If not, why? If yes, show how it changes.
Explanation / Answer
1.
A)
In order to obtain a ‘deeper’ understanding of a firm’s profit margin and turnover ratio of invested capital, it is useful to decompose the financial ratios by performing an index analysis only. - FALSE (An index analysis and a common-size analysis)
B)
Return on equity informs about the overall profitability of operations - FALSE (Profitability taking into account both operating and financial leverage)
C)
The turnover ratio of invested capital informs about the overall profitability of operations - False (Utilisation of invested capital)