Ratio Analysis

question 164

Multiple Choice

Ratio analysis:

• A)is required by GAAP as part of every company's income statement and balance sheet.
• B)will always identify the best investment decision.
• C)will tell you how a company will perform in the future.
• D)allows you to evaluate how well a company has performed relative to other different-sized companies within the same industry.

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Definitions:

Cost of Equity

The return a company theoretically pays to its equity investors, i.e., shareholders, to compensate for the risk they undertake by investing their capital.

Annual Dividend

The total dividend payment a company makes to its shareholders in a single year.

Dividends

Payments made by a corporation to its shareholder members, distributing a portion of the company's earnings.

Cost of Equity

The return a company requires to decide if an investment meets capital return requirements and can be seen as the opportunity cost of investing capital elsewhere.