When Two Companies' Profits Tend to Move in Opposite Directions

question 60

Multiple Choice

When two companies' profits tend to move in opposite directions in response to changing economic factors, the companies are likely

• A) negatively correlated.
• B) not correlated.
• C) unrelated in industry sector.
• D) in different regions of the world.

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Definitions:

Equity Method

An accounting technique used by companies to assess their investments in other companies, recognizing income and changes in investment value proportionate to ownership level.

Consolidated Balance Sheet

A financial statement that aggregates the financial position of a parent company and its subsidiaries, presenting it as one single entity.

Consolidation Elimination

The process of removing internal transactions and balances between entities within a single group to prepare consolidated financial statements.

Equity Method

An accounting technique used to record investments in affiliate companies where the investor has significant influence but not full control, typically between 20% and 50% ownership.