Why must care be taken when comparing a firm's share price to its operating income?
A) Both share price and operating income are related to the whole firm.
B) Share price is a quantity related to the entire firm, while operating income is an amount that is related solely to equity holders.
C) Both share price and operating income are related solely to equity holders.
D) Share price is a quantity related to equity holders, while operating income is an amount that is related to the whole firm.

Question

Quizplus · Accepted Answer

Share price reflects the market's valuation of the equity portion of the firm, representing what equity holders own. Operating income, on the other hand, is a measure of the firm's earnings before interest and taxes, which is relevant to both debt and equity holders. This distinction is crucial for accurate financial analysis and comparison.

Why Must Care Be Taken When Comparing a Firm's Share