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In answer of this question, Kaplan kit marker/checker is saying that Division F is not clearing his trade payable leading to reduction in net assets on which ROI is based. He later says that this is sub-optimal behavior.
Can you help me that how it is possible?
Because Capital Employed is Total Asset – Current Liabilities. If we want to decrease Current Liabilities so our asset might decrease like paying payables in cash or any cash equivalent sold to pay payables. So it should have NIL effect.
I do not have the Kaplan Kit, but I do have the examiners answer and I would assume that Kaplan has as usual just reprinted the examiners answer.
What is actually says is the one of the reasons for F’s net assets being lower than N’s is because of less cash and more payables.
The sub-optimal behaviour referred to is that delaying paying payables may result in bad relationships with their suppliers.