Financial Ratios Cannot Be Used to Evaluate the Creation of Shareholder

question 70

True/False

Financial ratios cannot be used to evaluate the creation of shareholder wealth because they are based on accounting numbers that reflect historical cost and not current market values.

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Definitions:

Public Company

A company whose shares are traded freely on a stock exchange, subject to regulatory and reporting requirements.

Stock Split

A corporate action where a company divides its existing shares into multiple shares to boost the liquidity of the shares, though the overall value of the shares remains the same.

Shares Outstanding

The total number of shares of a corporation that have been issued and are held by shareholders.

Par Stock

A standard inventory level that a business aims to maintain to ensure adequate supplies are available to meet demand without holding excessive stock.