Question

which of the following is true regarding financial statement analysis?
A. Common-sizing the balance sheet and income statement adjusts for differences in the credit ratings of different companies.
B. The total asset turnover ratio is a measure of a firm's operating efficiency.
C. A review of a firm's financial ratios over the past 5 years is an example of cross-section analysis.
D. An increase in the PE ratio indicates that investors are now placing a higher value on each of EPS.

Answer 1

Answer B :- The total asset turnover ratio is a measure of a firms operating efficiency.

Reason :Higher total assets turnover ratio indicates firm is able to generate more sales with the assets company currently have which means company is operating efficiently with its assets and performing well through increased sale which is a indicator of a firms operating efficiency.

Common sizing the balance sheet and income statement diet not adjust for credit ratings of dfferent companies instead it refleclts both numeric value and relative change in percentages.

A review of a firm financial ratios over 5 year is an example of time series analysis not cross section analysis m

Increse in PE ratio is the indicator that investors are expecting higher earnings growth in future instead placing a higher value on each EPS.