Indicate the effect of the following transactions on:

i. Return on net operating assets (RNOA)
ii. Return on common shareholders' equity (ROCE)
iii. Earnings per share (basic)

Consider each transaction independently and explain your answer. Assume that ROCE is higher than RNOA.

1. Company issues more preferred stock and uses proceeds to reduce accounts payable.
2. Company has a stock split.
3. Company converts to just-in-time inventory system (JIT). This allows them to hold half the levels of inventory for the same amount of sales (sales themselves are not increased by this change to JIT).

Question

Indicate the effect of the following transactions on:

i. Return on net operating assets (RNOA)
ii. Return on common shareholders' equity (ROCE)
iii. Earnings per share (basic)

Consider each transaction independently and explain your answer. Assume that ROCE is higher than RNOA.

1. Company issues more preferred stock and uses proceeds to reduce accounts payable.
2. Company has a stock split.
3. Company converts to just-in-time inventory system (JIT). This allows them to hold half the levels of inventory for the same amount of sales (sales themselves are not increased by this change to JIT).

Quizplus · Accepted Answer

The Answer of Indicate the effect of the following transactions on:

i. Return on net operating assets (RNOA)
ii. Return on common shareholders' equity (ROCE)
iii. Earnings per share (basic)

Consider each transaction independently and explain your answer. Assume that ROCE is higher than RNOA.

1. Company issues more preferred stock and uses proceeds to reduce accounts payable.
2. Company has a stock split.
3. Company converts to just-in-time inventory system (JIT). This allows them to hold half the levels of inventory for the same amount of sales (sales themselves are not increased by this change to JIT).

Indicate the Effect of the Following Transactions On