QUESTION 22

Which of the following statements relating to financial statement analysis is NOT true?

1. One of the reasons that the return to the firm calculated based on reported accounting figures (ROA) will typically be lower than the comparable measure based on the reformulated financial statements (RNOA) is because ROA includes financial assets

2. If a firm has net financial assets, its RNOA will typically be lower than its ROCE

3. Typically, the measure of leverage based on the reported accounting figures (debt-to-equity) is higher than the comparable figure based on the reformulated financial statements (FLEV)

4. Forecasting a change in the turnover ratio for an individual asset account in the Balance Sheet will typically have implications for other figures in the forecasted financial statements

QUESTION 21

Which of the following statements relating to financial statement analysis is NOT true?

1. ROCE is a levered measure of profitability

2. For forecasting purposes, profitability ratios should be based on the reported accounting amounts to ensure that the figures are reliable

3. To determine the asset turnover ratio (ATO) implied by the forecasted turnover ratios for each of the individual item on the Balance Sheet, these forecasted turnover ratios must be inverted

4. The operating spread measures the return that the firm is earning on its investment in assets above its financing costs