CFA Practice Question

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CFA Practice Question

Which of the following would not be a flaw in using return on investment ratios to evaluate management performance?
A. Such ratios rely more so on reported profitability as opposed to cash flows.
B. Such ratios may only be used on a relative basis.
C. Such ratios measure past performance and they are not risk adjusted.
Explanation: The fact that these ratios may be used on a relative basis carries much value. For instance, return on investment for a firm may be compared either to its historical record, in order to identify a trend, or it may be compared to some industry benchmark in order to assess its relative competitiveness.

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