Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Introduction to Ratios

Financial Accounting

14. Financial Statement Analysis

Introduction to Ratios

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Multiple Choice

Which of the following is the correct formula for calculating the Total Expenses Ratio?

Total Revenue \( \div \) Total Expenses

Total Expenses \( \div \) Net Income

Net Income \( \div \) Total Expenses

Total Expenses \( \div \) Total Revenue

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Verified step by step guidance

Understand the concept of the Total Expenses Ratio: It is a financial metric used to measure the proportion of total expenses relative to total revenue. This ratio helps assess how efficiently a company is managing its expenses in relation to its income.

Identify the components of the formula: The formula requires two key elements—Total Expenses and Total Revenue. Total Expenses represent all costs incurred by the company, while Total Revenue represents the income generated from sales or services.

Set up the formula: The Total Expenses Ratio is calculated by dividing Total Expenses by Total Revenue. In MathML, this can be expressed as:

\frac{Total Expenses}{Total Revenue}

Interpret the result: The resulting ratio indicates the percentage of revenue consumed by expenses. A lower ratio suggests better efficiency, while a higher ratio may indicate higher costs relative to income.

Apply the formula to a specific scenario: To calculate the Total Expenses Ratio, plug in the values for Total Expenses and Total Revenue from the financial statements. Ensure accuracy in identifying these figures to avoid errors in the calculation.