A manager states that "We must be creating wealth. To do so we're creating steady growth in earnings." What would you reply?
A) "That only creates wealth if the rate of return on the additional investment is greater than the required rate."
B) "Wealth creation is occurring, but the company would do better if we focused on cash flow."
C) "That's right."
D) "Growth in earnings is only relevant if it occurs without investment."

Question

Quizplus · Accepted Answer

Simply creating steady growth in earnings does not necessarily mean that wealth is being created. The rate of return on the additional investment needs to be greater than the required rate to ensure true wealth creation.

A Manager States That "We Must Be Creating Wealth