Question

In: Finance

Which of the following statements is most correct? a) Statement of stockholders’ equity shows by how...

Which of the following statements is most correct?

a) Statement of stockholders’ equity shows by how much a firm's total assets has changed during the year and why this change occurred.

b) Net operating profit after taxes is profit a company would generate after factoring in interest payments on debt.

c) Free cash flow is the amount of operating income that can be used to pay obligations as well as provide a return to shareholders.

d) Depreciation, a non-cash charge, is the charge to reflect the cost of assets depleted in the production process

Solutions

Expert Solution

Answer : Correct option is Option C Free cash flow is the amount of operating income that can be used to pay obligations as well as provide a return to shareholders.

Reason :

Statement of stockholders’ equity shows by how much a firm's total assets has changed during the year and why this change occurred is not fully correct as change in the total assets occur due to change in liabilities also. Solely Statement of stockholders’ equity doesnot show change in firm's Total assets.

Net operating profit after taxes is profit a company would generate after deducting all the expenses such as interest expenses and all the other expenses incurred by organisation so it does not only include factoring in interest payments on debt.Therefore  Net operating profit after taxes is profit a company would generate after factoring in interest payments on debt is not fully Correct.

Depreciation is the systematic depletion in the value of assets due to wear and tear , technology change, obsolence , use of Assets . Therefore  Depreciation, a non-cash charge, is the charge to reflect the cost of assets depleted in the production process is not correct.

Therefore Option C  Free cash flow is the amount of operating income that can be used to pay obligations as well as provide a return to shareholders is correct statement.

jeff jeffy answered 1 year ago
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