Which of the Following Statements Is False

question 60

Multiple Choice

Which of the following statements is false?

• A) The money taken in by the firm as a result of the share issue exactly offsets the dilution of the shares.
• B) Most analysts prefer to use performance measures and valuation multiples that are based on the firm's earnings before interest has been deducted.
• C) The fact that the firm's earnings per share and price-earnings ratio are affected by leverage implies that we can always reliably compare these measures across firms with different capital structures.
• D) In general, as long as the firm sells the new shares of equity at a fair price, there will be no gain or loss to shareholders associated with the equity issue itself.

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Definitions:

Current Ratio

A liquidity ratio measuring a company's ability to pay short-term obligations, calculated as current assets divided by current liabilities.

Acid-Test Ratio

A financial metric used to determine a company's short-term liquidity, calculating its ability to pay off short-term obligations without selling inventory.

Accounts Receivable Turnover

A financial metric that measures how effectively a company collects its receivables, calculated as net credit sales divided by the average accounts receivable.

Working Capital

A measure of a company's liquidity, operational efficiency, and short-term financial health, calculated as current assets minus current liabilities.