📢 Too many exams? Don’t know which one suits you best? Book Your Free Expert 👉 call Now!
  • google app store apple app store
    • ✖

      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