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

Working capital management is closely related to a company's liquidity. The more efficiently a company manages its working capital, the more cash it has available to meet short-term obligations, and this improves liquidity. Common size statements are used to analyze the composition of a company's income statement, balance sheet, or cash flows, and pro forma statements are projections of future financial performance. Option A is incorrect because common size statements deal with percentages of financial statement items, not cash. Option B is incorrect because high sales growth can create liquidity problems if a company does not have adequate cash and working capital to support business operations. Option C is incorrect because pro forma statements and common size statements serve different purposes.

Which of the Following Statements Is Most Correct