You Are Comparing the Common-Size Financial Statements for Two Firms

question 80

Essay

You are comparing the common-size financial statements for two firms in the same industry that have very similar operations.You note that their sales revenues are similar in dollar value but yet the common-size EBIT for one firm is 30 percent compared to only 26 percent for the other firm.What are some possible explanations for this difference given the strong similarities of the two firms?

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Definitions:

Pattern of Activation

In neuroscience and psychology, this term refers to how different neurons or brain regions are activated in a specific sequence or arrangement to perform a function or represent information.

Reality Monitoring

The process by which individuals are able to distinguish memories of actual events from those of imagined events.

Source Monitoring

Identifying where our memories, knowledge, or beliefs come from.

Locus of Causality

A concept in psychology that refers to the perceived source of control over events in one's life, whether internal or external.