Question

If Zephyr Electronics obtains an 18 percent return on invested capital, which of the following willhelp determine if it has a competitive advantage over other pharmaceutical companies?a. comparing the return to the return on invested capital obtained by other firms in theindustryb. assessing the value based on the shareholders' expectations of return on their capitalc. evaluating the liquidity ratios for other pharmaceutical companiesd. comparing the value to the history of the firm's return of investment over a number of years

Answer 1

Answer:

A) comparing the return to the return on invested capital obtained by other firms in the industry.

Explanation:

A firm that has developed a competitive advantage over its competitors will to able to either produce the same amount of output using fewer resources, or produce higher output using the same resources than its competitors. A competitive advantage means being more efficient.

So if we want to determine if Zephyr Electronics 18% return on invested capital (ROIC) provides them a competitive advantage over its competitors, we have to compare Zephyr's ROIC with the ROIC of the rest of the major firms in the industry.