Using Common-Size Balance Sheet Percentages to Project Individual Assets, Liabilities

question 24

Multiple Choice

Using common-size balance sheet percentages to project individual assets, liabilities, or shareholders' equity has all of the following shortcomings except :

• A) Individual assets, liabilities, and shareholders' equity are not independent of each other.
• B) If a company experiences changing proportions for investments in securities among its assets, other asset categories may show decreasing percentages in some years even though their dollar amounts are increasing.
• C) Individual assets, liabilities, and shareholders' equity are independent of each other.
• D) The common-size percentages do not permit the analyst to easily change the assumptions about the future behavior of an individual asset or liability.

Understand the fundamentals of loans and interest rates, including calculating loan payments and total amounts borrowed.

Calculate the future value of investments or savings, including those with regular contributions over time.

Determine the present value of future payments or investments to evaluate their current worth.

Apply the concepts of compounding interest semiannually and annually in financial calculations.

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Definitions:

Scientific Process

A methodical approach to inquiry that involves the systematic observation, measurement, experimentation, formulation, testing, and modification of hypotheses.

Deduction

A logical process where a conclusion follows necessarily from the given premises; moving from general principles to specific instances.

Scope

The extent or range of view, reach, or application, often defining the boundaries of a project, study, or activity.

Parsimony

A principle in science and philosophy that prefers the simplest explanation that accounts for all observed phenomena, often referred to as Occam's razor.