True or False - The mean-reverting behavior of sales growth and return on equity
ID: 2768228 • Letter: T
Question
True or False - The mean-reverting behavior of sales growth and return on equity that is demonstrated by the broader market can be applied to all companies in that market.
True or False - The Discounted Dividend method of valuation is based on the premise that a company's value can be determined by the present value of future dividends (including any liquidating dividends).
True or False - Abnormal Earnings arise when a company is able to produce earnings that exceed the expected rate of return on equity.
True or False - Accounting analysis and ratio analysis provide only a superfluous understanding of a company's current performance and should not, therefore, be relied upon as reliable indicators of continued performance.
*** References would be great too, I cannot find a CONFIRMED answer for these 4 questions*** TYou
Explanation / Answer
1. The mean-reverting behavior of sales growth and return on equity that is demonstrated by the broader market can be applied to all companies in that market. - False
mean reverting will have to most firms, but not all firms in the broader market since there can be situations in which companies may face long periods of low sales
2.The Discounted Dividend method of valuation is based on the premise that a company's value can be determined by the present value of future dividends - True
The above stament is correct and the dividends are discounted to the present value in the dividend distribution model
3.Abnormal Earnings arise when a company is able to produce earnings that exceed the expected rate of return on equity - False
Abnormal earnigs arise when there are some extraordinary items in the balance sheet and these increase or decrease the earnings by a very high margin and is a one time affair
4.Accounting analysis and ratio analysis provide only a superfluous understanding of a company's current performance and should not, therefore, be relied upon as reliable indicators of continued performance - True
This is one of the disadvantage of the ratio analysis
3.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.