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Ratios: Cash Return on Assets quiz #1

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  • What is the formula for calculating Cash Return on Assets (CRoA), and how is it expressed?
    The formula for Cash Return on Assets (CRoA) is operating cash flows divided by average total assets. It is expressed as a percentage by multiplying the result by 100.
  • Why is a higher Cash Return on Assets (CRoA) considered better for a company?
    A higher CRoA indicates greater efficiency in generating cash from assets, meaning the company is able to produce more operating cash flow for each dollar of assets it maintains.
  • What does a negative Cash Return on Assets (CRoA) indicate, and what should an analyst do if this occurs?
    A negative CRoA indicates negative operating cash flows, which can be a red flag. Analysts should investigate the reasons behind the negative cash flows from operating activities.
  • How do you calculate average total assets when determining CRoA?
    Average total assets are calculated by adding the beginning and ending balances of total assets and dividing by 2.
  • Which section of the statement of cash flows is used in the numerator of the CRoA formula?
    The numerator of the CRoA formula uses operating cash flows, which are found in the operating activities section of the statement of cash flows.
  • What is the formula for calculating Cash Return on Assets (CRoA)?
    CRoA is calculated as operating cash flows divided by average total assets, and is usually expressed as a percentage by multiplying by 100.
  • Which section of the statement of cash flows provides the numerator for the CRoA formula?
    The numerator, operating cash flows, comes from the operating activities section of the statement of cash flows.
  • How do you calculate average total assets when determining CRoA?
    Average total assets are calculated by adding the beginning and ending balances of total assets and dividing by 2.
  • Why is a higher Cash Return on Assets (CRoA) considered better for a company?
    A higher CRoA means the company is more efficient at generating cash from its assets, producing more operating cash flow for each dollar of assets.
  • What does a negative Cash Return on Assets (CRoA) indicate, and what should an analyst do if this occurs?
    A negative CRoA indicates negative operating cash flows, which can be a red flag, so analysts should investigate the reasons behind the negative cash flows from operating activities.