Question
1) CEOs & financial markets usually use the past year's return on equity as the main way to judge strategic performance. Why can this be
1) CEOs & financial markets usually use the past year's return on equity as the main way to judge strategic performance. Why can this be a problem?
a. CEO decisions can dramatically improve ROE in the short run.
b. ROE is really constrained by the long term asset and equity positions of a company, and therefore won't vary that much from period to period
c. ROE is only relevant to shareholders, and is not meaningful to those who own a company's bonds
2) The detailed analysis of the financial statements of retail chains A (Macy's), B (Kroger), and C (CVS Health) best illustrates the idea that
a) retail chains carry little cash and near-cash equivalents on their balance sheets compared to other types of businesses
b) different businesses have operating characteristics that can be discerned by way of a thorough investigation of their financial and operating data.
c) drugstores always have a lower return on equity than grocers or department stores
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