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Questions and Answers
Which group of individuals may use financial ratios to evaluate the overall financial condition of a corporation or organization?
Which group of individuals may use financial ratios to evaluate the overall financial condition of a corporation or organization?
- Managers within a firm, financial analysts, and bondholders
- Financial analysts, managers within a firm, and current shareholders
- Managers within a firm, current and potential shareholders, and a firm's creditors (correct)
- Financial analysts, potential shareholders, and a firm's creditors
How can ratios be expressed?
How can ratios be expressed?
- As a whole number or as a fraction
- As a decimal value or as an equivalent percentage value (correct)
- As a fraction or as an exponent
- As a percentage value or as a mixed number
What can one do with the reciprocal of a ratio?
What can one do with the reciprocal of a ratio?
- One can take its reciprocal, and if the original ratio was above 1, the reciprocal will be below 1, and conversely (correct)
- The reciprocal will always be greater than the original ratio
- The reciprocal will always be a whole number
- One can add the reciprocal to the original ratio to get a new ratio
Which ratios are usually quoted as percentages?
Which ratios are usually quoted as percentages?
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What does the reciprocal of a financial ratio express?
What does the reciprocal of a financial ratio express?
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Study Notes
Financial Ratios
- Stakeholders, investors, creditors, and management may use financial ratios to evaluate the overall financial condition of a corporation or organization.
Expressing Ratios
- Ratios can be expressed as a decimal value, a fraction, or a percentage.
Reciprocal of a Ratio
- One can invert a ratio by calculating its reciprocal, which is achieved by flipping the numerator and denominator.
Ratio Quotation
- Some ratios, such as return on investment (ROI) and return on equity (ROE), are usually quoted as percentages.
Reciprocal of a Financial Ratio
- The reciprocal of a financial ratio expresses the inverse of the original ratio, providing an alternative perspective on the financial data.
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