Which of the Following Represents the Most Appropriate Description of Vertical

question 4

Multiple Choice

Which of the following represents the most appropriate description of vertical analysis?

• A) An analyst prepares pro forma financial statements for the next five years.
• B) An analyst compares financial ratios of a company over the last five years.
• C) An analyst compares financial ratios for the current year for two companies.
• D) An analyst prepares ratios to determine what sales are required to earn a profit.
• E) An analyst develops ratios to determine how much the company needs to borrow.

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Definitions:

Selling Expenses

Costs incurred directly from the selling of products or services, such as advertising and sales staff salaries.

Depreciation

The methodical distribution of a physical asset's cost throughout its expected lifespan.

Cost Of Goods Sold

Expenses directly linked to the creation of products sold by a business, such as materials and workforce costs.

Merchandising Firm

A business that purchases finished products and sells them to consumers without altering the state of the product.