Two Firms in the Same Industry Are the Same Size

question 31

Multiple Choice

Two firms in the same industry are the same size and have very similar real-world financial results. Which of the following describes the profitability ratios of these firms?

• A) They could be very different because ratios are based on projections of future performance rather than on actual real-world performance.
• B) They should be identical because regulations require all firms in the same industry to use the same accounting methods to construct their financial statements and compute their key financial ratios.
• C) They should be very similar because both firms must use exactly the same mathematical formulas to calculate their ratios.
• D) They could be different if they used approved but dissimilar methods to construct their financial statements.

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Definitions:

Thyroxine

A hormone produced by the thyroid gland, important for regulating metabolism.

Correct Abbreviation

A shortened form of a word or phrase that is officially recognized and widely accepted.

Somatotropin Hormone

Another term for growth hormone, a substance produced by the pituitary gland that stimulates growth, cell reproduction, and regeneration in humans.

Correct Abbreviation

A shortened form of a word or phrase used correctly in a specific context.