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:

Adjusted

Modified or changed financial statements or data to reflect more accurately the economic reality.

Negative NCI

A scenario where the non-controlling interest (minority interest) in a subsidiary has a debit balance, indicating that the subsidiary has incurred losses.

Accounting Standards

These are established rules and guidelines fiscal reporting must follow to ensure consistency, reliability, and comparability of financial statements.

Consolidated Financial Statements

Financial statements that aggregate the financial position, results of operations, and cash flows of a parent company and its subsidiaries, presenting them as a single economic entity.