Which of the Following Statements Is Not Correct

question 15

Multiple Choice

Which of the following statements is not correct?

• A) The common-size analysis permits the analyst to compare and contrast the financial statements of two and more companies in the same industrial sector or risk class more easily.
• B) The common-size analysis reduces the problem of the size difference between companies.
• C) The common-size analysis helps the analyst formulate hypotheses about the most efficient business model between the firms compared,and identify possible thresholds in economies of scale.
• D) The common-size analysis allows only comparison over one year.

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Definitions:

Realized Gains

Profits that result from selling an asset at a higher price than its cost.

Other Comprehensive Income

Earnings that are not part of net income, consisting of items such as unrealized gains and losses on certain investments.

Retained Earnings

The portion of net income that is retained by the corporation instead of being paid out as dividends to shareholders.

Earnings Management

The practice of using accounting techniques to produce financial reports that may paint an overly positive picture of a company's business activities and financial position.