Question 3.A.28: Assume that a business has internally generated goodwill tha...
Assume that a business has internally generated goodwill that was created in earlier years. If this resource were introduced as a non-current asset with an indefinite life in the current statement of financial position, what would be the effect on ROSF, ROCE and the gearing ratio?
Total assets will increase and equity will also increase. An increase in equity will increase the denominator (lower part of the fraction) for all three ratios. This in turn will lead to lower ratios than would be the case if the goodwill were not introduced.
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ROCE
=
Operating
profit margin
×
Sales revenue to
...