Dec 2013

Hello Sir,for PYQ Dec 2013
Q3b(ii)(2 questions under the same question)

1)” The differences between ROCEs which have not been adjusted for rising prices can be quite large with ROCEs from earlier years appearing much higher/better than the ROCE of the current year. It follows that the secondary ratios of profit margins and asset utilisation for earlier years are also flattering compared to current year measures.”

I don’t understand why the earlier year ROCE will much higher than the current year ROCE as current ROCe will have higher profit and lower asset amount due to the rising price,is it should be turn around?
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2)” A related issue is that over time the understatement
of assets (in terms of their current values) can depress a company’s share price”

Why the understatement of asset will depress the company share price ?I thought the understate the profit will only affect the share price?

Thank you.