A Conservative Rule of Thumb for Measuring the Value of a Firm

question 96

True/False

A conservative rule of thumb for measuring the value of a firm is to establish a business' worth to be 10 times the firm's most current annual profit.

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Definitions:

Investing Activities

Transactions involving the purchase or sale of long-term assets and investments not included in cash equivalents.

Financing Activities

Transactions involving long-term liabilities and equity, including issuing debt, repurchasing shares, and paying dividends, as part of a company's fund-raising activities.

Not Affecting Cash

Transactions or events that do not result in actual cash flow in or out of a company but may still impact the financial statements.

Payments to Suppliers

Amounts of money paid by a company to its suppliers for goods or services received.