Which of the Following Statements About Financial Statement Analysis Is

question 98

Multiple Choice

Which of the following statements about financial statement analysis is incorrect?

• A)In horizontal percentage analysis,an item from the financial statements is expressed as a percentage of the same item from a previous year's financial statements.
• B)Vertical analysis compares two or more financial statement items within the same time period.
• C)Horizontal analysis for several years can be done by choosing one year as a base year and calculating increases or decreases in relation to that year.
• D)The reason behind a financial statement ratio or percentage analysis result is usually self-evident and does not require further study or analysis.

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Definitions:

Contribution Margin

The amount remaining from sales revenue after variable expenses are deducted, used to cover fixed costs and generate profit.

Business Segments

Different parts of a company that operate in distinct markets or industries, often reported separately in financial statements.

Common Fixed Expenses

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance, shared across different parts of a business.

Break-Even Sales

The level of sales at which total revenues equal total costs, resulting in neither profit nor loss for the business.