Profitability Ratios Are Distorted by Inflation Because Profits Are Stated

question 52

True/False

Profitability ratios are distorted by inflation because profits are stated in current dollars and assets and equity are stated in historical dollars.

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Definitions:

No-par Common Stock

Common stock issued without a par value which means it is not assigned a nominal or face value, but it still represents ownership in a company.

Stated Value

A nominal value assigned to a corporation's stock that bears no relation to its market price, used for calculating capital stock.

Par Preferred Stock

A type of preferred stock that has a nominal face value, which is the amount paid out to shareholders during liquidation before common stockholders.

Preferred Stock

A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock, usually with dividends that are paid out prior to those to common stockholders.