Unit 1

Question 1

Return on Owner’s investment formula

Answer 1

(Net profit / average capital) x100

Question 2

What does return on owner’s investment measure

Answer 2

A profitability indicator that indicates how effectively a business has used the owner’s capital to earn profit

Key measure from manager’s perspective

Question 3

High debt ratio implication

Answer 3

The higher the debt ratio, the greater the risk that the business will not be able to meet its debts as and continue operation in the long term