Why Must Care Be Taken When Comparing a Firm's Share

question 2

Multiple Choice

Why must care be taken when comparing a firm's share price to its operating income?

• A) Both share price and operating income are related to the whole firm.
• B) Share price is a quantity related to the entire firm, while operating income is an amount that is related solely to equity holders.
• C) Both share price and operating income are related solely to equity holders.
• D) Share price is a quantity related to equity holders, while operating income is an amount that is related to the whole firm.

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Definitions:

Partnerships

A business structure in which two or more individuals manage and operate a business in accordance with the terms and objectives set out in a Partnership Agreement.

Net Investment

The total amount spent by a company or economy on capital assets, minus depreciation, reflecting the increase in value of the entity's productive capacity.

Capital Stock

The total value of machinery, buildings, and equipment owned by businesses used to produce goods and services.

Gross Investment

Refers to the total amount of money invested in the creation of new capital assets in an economy within a specific time period, without deducting depreciation.