Question

An individual interested in making a judgment about the profitability of a company should: review the...

An individual interested in making a judgment about the profitability of a company should:

  • review the trend of the company's ROI for several years.

  • review the trend of working capital for several years.

  • calculate the company's ROI for the most recent year.

  • compare the company's ROI for the most recent year with the industry average ROI for the most recent year.

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Answer #1

In order to judge accompany profitability individual should compare the companies return on investment for the most recent year with the industry average return on investment for the most recent year. This is because comparing with the industry average it can be judged that there is no extraordinary for one time gain which company has received due to which the return on investment is seen at higher place.

Also the return on investment for the recent year is to be taken so as to understand the company's stability and consistency. The more the consistency and stability of the company the better will be its rating. Also so if the return on investment of the company is higher than the industries average of return investment it will be giving a good position to the individual.

Therefore the correct option is 4th.

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