5 Questions
Which of the following is NOT a goal of financial ratios?
Facilitating comparative analysis
Which ratios can be used to measure profitability?
Gross Profit, Net Profit, Expenses and Other Ratios
What can be determined by calculating operating/activity ratios?
Operational efficiency
Which ratios are used to measure the financial position of a business?
Liquidity and solvency ratios
What is one of the benefits of ratio analysis for financial forecasting and planning?
Comparing present performance with past performance
Study Notes
Financial Ratio Analysis
- Identifying a firm's strengths and weaknesses is a goal of financial ratios.
- Predicting future performance is a goal of financial ratios.
- Evaluating a firm's current financial position is a goal of financial ratios.
- Determining the quality of a firm's management is NOT a goal of financial ratios.
Profitability Ratios
- Gross Profit Margin Ratio measures profitability.
- Operating Profit Margin Ratio measures profitability.
- Net Profit Margin Ratio measures profitability.
- Return on Equity (ROE) measures profitability.
Operating/Activity Ratios
- Asset Utilization can be determined by calculating operating/activity ratios.
- Efficiency of a firm's operations can be determined by calculating operating/activity ratios.
- liquidity of a firm's assets can be determined by calculating operating/activity ratios.
Financial Position Ratios
- Liquidity Ratios are used to measure the financial position of a business.
- Solvency Ratios are used to measure the financial position of a business.
- Cash Flow Ratios are used to measure the financial position of a business.
Benefits of Ratio Analysis
- One of the benefits of ratio analysis for financial forecasting and planning is to identify areas for improvement.
Test your knowledge of financial ratios and their importance in evaluating a company's revenue, effectiveness, and financial stability. Explore key ratios for measuring profitability and determining operational efficiency.
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