When Using Common-Size Financial Statements to Evaluate the Operating Results

question 37

Multiple Choice

When using common-size financial statements to evaluate the operating results of two different companies, the gross margin of Company A is expressed as a percentage of:

• A)Company B's gross margin.
• B)the total gross margins of Companies A and B.
• C)Company A's sales.
• D)a common standard for both Company A and Company B.

---

Definitions:

Expansion Project

An initiative undertaken by a company to increase its production or service capacity, often requiring significant capital investment.

Operating Cash Flow

Cash generated from a company's normal business operations, indicating its ability to generate sufficient positive cash flow to maintain and grow operations.

Net Working Capital

The difference between a company's current assets and its current liabilities, indicating its short-term financial health and efficiency.

Cash Expenses

Payments that a business makes in cash, including operating expenses, purchasing of goods, and other transactions.