What Benefit Does Converting Sales and Profits to Constant Dollars

question 16

Multiple Choice

What benefit does converting sales and profits to constant dollars in times of inflation offer when analyzing a case?

• A) It is helpful in predicting the future potential of the organization.
• B) It contributes to determining the risk factors when computing the Z-value.
• C) It shows the True performance of the corporation adjusted for inflation to make them comparable over years.
• D) It is easier for the financial analyst to judge the effectiveness of management's decision making.
• E) It provides a method which is familiar and easy to understand.

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Definitions:

Return On Assets

A measure of a company's profitability, indicating how efficient it is at using its assets to generate earnings.

Statement Of Cash Flows

A report detailing how shifts in income and balance sheet figures impact cash and its equivalents.

Cash Balance

The amount of cash or cash equivalents that a company or individual has available at any given time.

Common-Size Statement

A common-size statement is a financial statement in which each line item is expressed as a percentage of a certain figure for the purpose of comparison and analysis, such as revenues in an income statement.