Select one question below. Integrate 1-2 external references to support your thoughts and correlate with real-life context.

  1. Under standard accounting rules, it is possible for a company’s liabilities to exceed its assets. When this occurs, the owners’ equity is negative. Can this happen with market values? Why or why not?
  2. You are examining the common-size income statements for a company for the past five years and have noticed that the cost of goods as a percentage of sales has been increasing steadily. At the same time, EBIT as a percentage of sales has been decreasing. What might account for the trends in these ratios? What actions might managers take to improve these ratios?

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