Description
When calculating return on net operating assets, analysts sometimes make adjustments to the net operating asset base used in the denominator of the ratio. Three possible adjustments are listed below. Explain what these adjustments are, and discuss the merits of these adjustments.
- Non-operating asset adjustment
- Intangible asset adjustment
- Accumulated depreciation adjustment
Explanation & Answer
Attached.
Running head: RETURN ON INVESTED CAPITAL AND PROFITABILITY ANALYSIS
Return on Invested Capital and Profitability Analysis
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RETURN ON INVESTED CAPITAL AND PROFITABILITY ANALYSIS
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1. Non-operating asset adjustment.
Non-working assets, for example, interests in excess cash and marketable securities, are
deducted from contributed capital. The goal is to concentrate the analysis on net working assets and
working outcomes separate from the financial activities of the organization. If net working assets are
removed from the denominator, the related income of the project (losses, profits, interests, and other
gains) must be removed from the numerator. ...