When a Company Has Unusually High or Low Net Income

question 85

Multiple Choice

When a company has unusually high or low net income, the ________ is not the most useful valuation ratio.

• A) Current Ratio
• B) Price to Earnings Ratio
• C) Quick Ratio
• D) Price to Book Ratio

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Definitions:

Inventories

Assets held for sale in the ordinary course of business, or in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of services.

Net Realizable Value

Net realizable value is the estimated selling price of goods minus the costs of their completion and disposal, used to assess inventory valuation.

Lower of Cost

An accounting principle requiring that inventory is recorded at the lower of its original cost or current market value.

Long-Term Debt

Borrowings and financial obligations that are due after a period greater than one year, used as a source of long-term financing.