📢 Too many exams? Don’t know which one suits you best? Book Your Free Expert 👉 call Now!


    Question

    A firm’s Return on Capital Employed (ROCE) is falling

    over three years despite rising profits. Which of the following is the most likely reason?
    A Increase in equity capital only Correct Answer Incorrect Answer
    B Increase in borrowed capital without proportionate returns Correct Answer Incorrect Answer
    C Higher dividend distribution Correct Answer Incorrect Answer
    D Low sales volume Correct Answer Incorrect Answer
    E Low inventory turnover Correct Answer Incorrect Answer

    Solution

    ROCE = EBIT / Capital Employed. If capital employed (debt + equity) increases faster than EBIT, ROCE falls, even if profits rise. Hence, unproductive use of funds reduces efficiency.

    Practice Next
    More Previous year papers Questions
    ask-question