1. Which factor does not explain differences or changes in ROA?
   A. Financial Leverage
   B. Cyclicality of Sales
   C. State and Length of product life cycle
   D. Operating Leverage

A. Financial Leverage

2. Firms with high levels of operating leverage experience _______________ in comparison to firms with low levels of operating leverage

higher levels of risk in operations

3. Multiples of EPS to value firms are referred to as

price-to-earnings ratios

4. Return on common equity (ROCE) can be disaggregated into what three components?

profit margin, total assets turnover, capital structure leverage

5. What scenario is consistent with a increasing cost of goods sold to sales percentage and increasing inventory turnover?

Firm shifts its product mix toward lower margin, faster moving products.

6. One important difference between return on assets (ROA) and return on common shareholder's equity (ROCE) is

ROA does not differentiate based on how a company finances its assets; ROCE does.

7. Asset turnover represents

The ability to generate sales from a particular investment in assets.

8. Sustainable earnings represent

level of earnings and level of growth in earnings expected to persist in the future.

9. Committed fixed costs

costs that are not affected by a level of activity during the period. Examples: depreciation and rent

10. Discretionary fixed costs

can be altered but do not vary directly with the level of activity. Examples: R&D, maintenance, advertising, IT expenditures, and central corporate staff expenses.