Test on ROI and ROE in Strategic Management
ROI and ROE in Strategic Management: Explained for Students
Test: Corporate financial ratios
20 questions
Question 1: In the short run, a company's profit margin is influenced by the attractiveness degree of the business where it competes.
A. Ano
B. Ne
Explanation: In the short run, profit margin depends on the attractiveness degree of the business where competing, as influenced by Michael Porter’s five forces.
Question 2: In the long run, if a company has a strategy that does not imply investing in new assets, asset turnover would be primarily affected by changes in the company's competitive position and the industry life cycle, with no potential for variations in revenue/sales volumes or average asset levels.
A. Ano
B. Ne
Explanation: In the long run, if a company has a strategy that does not imply investing in new assets, the asset turnover ratio would be affected only on the revenue/sales levels. Changes in revenue result from potential changes in prices and potential changes in sold units (quantity). These aspects can vary due to changes in the company's competitive position or changes in the industry life cycle and competitive environment.
Question 3: Can an investment be considered effective if it enables reducing costs, thereby impacting the profit margin?
A. Ano
B. Ne
Explanation: The study materials state that an investment is considered effective when it enables reducing costs, and the profit margin depends on the revenues and cost level of a company.
Question 4: In the short run, the profit margin of a company is primarily influenced by the company's debt ratio.
A. Ano
B. Ne
Explanation: According to the study materials, in the short run, the profit margin depends on the company’s competitive advantage and the attractiveness degree of the business where it competes. The debt ratio is not listed as a short-run driver for profit margin.
Question 5: The primary formula for Return on Investment (ROI) is calculated by adding the Profit margin and the Asset turnover.
A. Ano
B. Ne
Explanation: The study materials state that ROI is calculated by multiplying Profit margin by Asset turnover, not by adding them.