Profits and Losses Are True Signals Because They

question 17

Multiple Choice

Profits and losses are true signals because they

• A) convey information about true long-run profits.
• B) cannot be misinterpreted by entrepreneurs.
• C) convey information about where to place resources and reward people who act on the information.
• D) reward people who make profits with even more profits and punish those who make losses with even more losses.

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Definitions:

Return on Equity

An indicator of a company's financial success, showing the amount of profit generated from the investments made by its shareholders.

Net Profit Margin

A financial performance metric that shows the percentage of net income derived from revenue.

Earnings Per Share

A financial metric that represents the portion of a company's profit allocated to each outstanding share of common stock, indicating its profitability.

Dividend Yield

A ratio indicating the annual dividends a firm pays out compared to its stock price.