Which of the following statements is most correct?
A)Common-size financial income statements provide information about major sources and uses of cash.
B)Companies with the highest sales growth will have the fewest liquidity problems.
C)Pro forma statements are the same as common-size statements.
D)The more efficiently a company manages its working capital the greater its liquidity, all else equal.

Question

Quizplus · Accepted Answer

Efficient management of working capital, which includes managing inventories, accounts payable, and accounts receivable, helps a company maintain adequate liquidity. The other options are incorrect. Common-size financial statements show the percentage of each item on the income statement or balance sheet as a proportion of total revenue or assets, but do not provide information about major sources and uses of cash. High sales growth does not necessarily translate to better liquidity, as a company may have a high level of debt to support its growth. Lastly, pro forma statements are created to project future financial performance based on expected changes, while common-size statements focus on presenting financial data in a standardized format.

Which of the Following Statements Is Most Correct