1. What is return on investment? What are some of the types of measures for return on investment? Why is the following ratio preferred?
Net Income Before Noncontrolling Interest and nonrecurring Items + [(Interest expense) X (1 Tax Rate )] / Average (Long Term Debt + Equity)
Why is the interest multiplied by (1 Tax Rate)?
2. G. Herrich Company and Thomas, Inc., are department stores. For the current year, they reported a net income after tax of $400,000 and $600,000, respectively. Is Thomas, Inc., a more profitable company than G. Herrich Company? Discuss.
3. Since interim reports are not audited, they are not meaningful. Comment.
4. Speculate on why accounting standards do not mandate full financial statements in interim reports.
5. Why may comprehensive income fluctuate substantially more than net income?
6. Why can pro forma financial information be misleading?