Which of the Following Statements Is CORRECT

question 12

Multiple Choice

Which of the following statements is CORRECT?

• A)In general, if investors regard a company as being relatively risky and/or having relatively poor growth prospects, then it will have relatively high P/E and M/B ratios.
• B)The basic earning power ratio (BEP) reflects the earning power of a firm's assets after giving consideration to financial leverage and tax effects.
• C)The "apparent," but not necessarily the "true," financial position of a company whose sales are seasonal can change dramatically during a given year, depending on the time of year when the financial statements are constructed.
• D)The market/book (M/B) ratio tells us how much investors are willing to pay for a dollar of accounting book value. In general, investors regard companies with higher M/B ratios as being more risky and/or less likely to enjoy higher future growth.
• E)It is appropriate to use the fixed assets turnover ratio to appraise firms' effectiveness in managing their fixed assets if and only if all the firms being compared have the same proportion of fixed assets to total assets.

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Definitions:

Parking Lots

Designated areas where vehicles can be parked, often found near businesses, public spaces, or commercial buildings.

Depletion

The allocation of the cost of natural resources over their useful life or extraction period, reflecting the reduction in the resource's value.

Owner's Equity

The residual interest in the assets of the entity after deducting liabilities, often referred to as shareholders' equity or net worth.

Net Income

Net income is the ultimate profit a company achieves after subtracting all taxes, expenses, and costs from its total income.