5 Questions
Which group of individuals may use financial ratios to evaluate the overall financial condition of a corporation or organization?
Managers within a firm, current and potential shareholders, and a firm's creditors
How can ratios be expressed?
As a decimal value or as an equivalent percentage value
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
Which ratios are usually quoted as percentages?
Earnings yield
What does the reciprocal of a financial ratio express?
The same information, but may be more understandable
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.
Test your knowledge of financial ratios with this quiz! Explore the key ratios used to evaluate a company's financial health and performance, and understand their significance for managers and shareholders.
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