Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Introduction to Ratios

Financial Accounting

14. Financial Statement Analysis

Introduction to Ratios

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Multiple Choice

Which of the following can be used to encourage managers to maximize the value of the stock?

Limiting access to financial statements

Stock-based compensation plans

Reducing dividend payments

Increasing the company's debt ratio

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Verified step by step guidance

Understand the concept of stock-based compensation plans: These are incentive programs that align the interests of managers with shareholders by providing managers with stock options or shares. When the stock value increases, managers benefit directly, encouraging them to maximize the company's stock value.

Analyze why limiting access to financial statements is not effective: Transparency in financial reporting is crucial for decision-making and accountability. Limiting access would hinder managers' ability to make informed decisions and does not incentivize them to maximize stock value.

Evaluate the impact of reducing dividend payments: While reducing dividends might retain more earnings for reinvestment, it does not directly incentivize managers to focus on stock value. Shareholders might also view reduced dividends negatively, potentially lowering stock value.

Consider the implications of increasing the company's debt ratio: A higher debt ratio increases financial risk, which could deter managers from taking actions that maximize stock value. It does not serve as a direct incentive for managers to focus on stock performance.

Conclude that stock-based compensation plans are the most effective option: By tying managerial rewards to stock performance, these plans create a direct link between managerial actions and shareholder value, encouraging managers to prioritize maximizing the stock's value.