One Reason That a Common-Sized Statement Is a Useful Tool

question 12

Multiple Choice

One reason that a common-sized statement is a useful tool in financial analysis is that it enables the user to

• A) judge the relative potential of two companies of similar size in different industries
• B) determine which companies in a single industry are of the same value
• C) determine which companies in a single industry are of the same size
• D) make a better comparison of two companies of different sizes in the same industry

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Definitions:

CAPM

Capital asset pricing model. A statistical model of the investment world aimed at explaining how required returns are determined in financial markets and thereby how stock prices are set. Also see SML.

Risk-Free Interest

The return on investment with no risk of financial loss, typically associated with government bonds.

Firm's Beta

A measure of a stock's volatility in relation to the overall market, indicating the stock's risk level.

Transaction Costs

Expenses incurred when buying or selling goods and services, which can include fees, taxes, and other charges.