Financial Reporting And Analysis - Financial Reporting And Analysis Section 2
26. Which of the following statements is most accurate?
- Option : A
- Explanation : Statement B is incorrect because the company is likely to face an operational problem with obsolescence if the inventory grows more quickly that revenue. Statement C is incorrect because if net income is growing faster than revenue, the company’s profitability increases.
27. With a vertical common size balance sheet, each item is divided by:
- Option : B
- Explanation : With a vertical common size balance sheet, each item is divided by total assets.
- Option : A
- Explanation : Several ratios are industry specific; hence ratios should be selected based on the industry being evaluated.
- Option : A
- Explanation : Presenting the financial data of a company in relation to single financial statement item is known common size analysis.
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