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.
E)Share price is a quantity related to the enterprise value of the firm,while operating income is related to the equity holders.

Question

Quizplus · Accepted Answer

Share price reflects the market's valuation of the equity portion of a firm, representing the value to equity holders. Operating income, on the other hand, is a measure of a company's profitability from its operations, relevant to the entire firm, including both equity and debt holders. This distinction is crucial for accurate financial analysis and comparison.

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