Question

Which pair of the following statements is both wrong:     1. Net earnings are equal to...

Which pair of the following statements is both wrong:

    1. Net earnings are equal to NOPAT
    2. Retained earnings appear in both the balance sheet and the income statement but mean differently
    3. In a stock swap M&A, there is no tax implication
    4. A balance sheet is a static statement
    5. Net cash flow is always on an after tax basis

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Answer #1

Solution.>

Pair of Statement 1 and Statement 5 is wrong.

Statement 1 is not correct. Net earnings are not always equal to NOPAT. If there are no financing costs for a company, or there is no interest income to report, then NOPAT will be the same as the net earnings.

Statement 2 is correct. Retained earnings appear in both the balance sheet and the income statement but mean differently.

Statement 3 is correct. In a stock swap M&A, there is no tax implication.

Statement 4 is correct. The balance sheet is a static document. It gives you a snapshot of the business at a given point in time—its assets, liabilities, and owner's equity.

Statement 5 is not correct.  Net cash flow is not always on an after tax basis. Net cash flow refers to the difference between a company's cash inflows and outflows in a given period.

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