You Wish to Compare the Performance of Two Companies

question 75

Multiple Choice

You wish to compare the performance of two companies. Which of the following statements is most likely to be incorrect?

• A)If the companies operate in different industries, this will hinder comparability.
• B)The use of different accounting methods will hinder comparability.
• C)If the companies are of significantly different sizes, this will hinder comparability.
• D)If companies have different auditors, this will hinder comparability.

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Definitions:

Common Macroeconomic Factor

Economic variables that affect a broad segment of the economy and consequently can influence the performance and value of financial investments.

Uncertainty

The degree of variability in investment returns, often associated with the lack of predictability in markets and future events.

Well-Diversified Portfolio

A portfolio that contains a mix of assets in such a way as to reduce the risk of investing by spreading investments across various sectors, industries, or asset classes.

Standard Deviation

Standard deviation is a statistic that measures the dispersion or variability of a dataset relative to its mean, often used to gauge volatility.