When Making Financial Decisions Related to Assets, You Should

question 46

Multiple Choice

When making financial decisions related to assets, you should:

• A) always consider market values.
• B) place more emphasis on book values than on market values.
• C) rely primarily on the value of assets as shown on the balance sheet.
• D) only consider market values if they are less than book values.

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Definitions:

Price-Earnings Ratio

A valuation ratio of a company's current share price compared to its per-share earnings, indicating the dollar amount investors will pay for $1 of earnings.

Market Price

The existing cost for buying or selling an asset or service.

Common Stock

Common stock represents shares of ownership in a corporation, giving shareholders voting rights and a share in the company's profits through dividends.

Acid-Test Ratio

A financial metric used to evaluate a company's short-term liquidity position by comparing its most liquid assets (excluding inventory) to its current liabilities.