The Most Acceptable Method of Evaluating the Financial Statements of a Firm

question 36

Multiple Choice

The most acceptable method of evaluating the financial statements of a firm is to compare the firm's current:

• A)financial ratios to the firm's historical ratios.
• B)financial statements to the financial statements of similar firms operating in other countries.
• C)financial ratios to the average ratios of all firms located within the same geographic area.
• D)financial statements to those of larger firms in unrelated industries.
• E)financial statements to the projections that were created based on Tobin's Q.

---

Definitions:

Pre-Tax Income

The amount of income earned by a business or individual before any taxes have been deducted.

Publicly Traded

Refers to a company whose shares are available for purchase by the public on stock exchanges.

Tax Burden

The total amount of taxes paid by an individual or business, expressed as a percentage of income.

Piece Rate Plan

A compensation model where workers are paid a fixed sum for each unit of production completed, rather than an hourly wage.