What indications can be derived from a firm's balance sheet and income statement when researching the firm as a stock option?
A)Liquidity and financial leverage
B)Income over liabilities ratios
C)Bankruptcy risk
D)P/E yield

Question

Quizplus · Accepted Answer

The balance sheet and income statement provide information about a firm's liquidity (ability to meet short-term obligations) and financial leverage (amount of debt compared to equity). These factors can indicate the firm's financial stability and ability to repay debts, which can affect its stock price. Income over liabilities ratios (option B) and P/E yield (option D) are not typically found on the balance sheet or income statement, and bankruptcy risk (option C) may be indirectly indicated through the firm's financial leverage ratio.

What Indications Can Be Derived from a Firm's Balance Sheet