To diagnose the sources of a firm's poor financial performance,it is useful to:
A)Focus on the firm's cash flow statement rather than its income statement and balance sheet
B)Concentrate on sales growth and market share rather than profit data
C)Adopt a forward-looking approach through analyzing share price performance rather than looking at backward-looking accounting statements
D)Disaggregate overall return on capital into its component items

Question

Quizplus · Accepted Answer

Disaggregating overall return on capital into its component items can help identify which specific factors contributed to poor financial performance, such as low margins or inefficient use of assets. This approach allows for targeted solutions to address the specific issues causing poor performance. Focusing only on cash flow or sales growth may not provide a comprehensive understanding of the underlying issues. And while analyzing share price performance can provide insight into investor sentiment, it does not necessarily reveal the root causes of poor financial performance.

To Diagnose the Sources of a Firm's Poor Financial Performance,it