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 actions would most likely help a company improve its financial ratios?

Increasing inventory levels without increasing sales

Extending payment terms to suppliers beyond due dates

Reducing unnecessary expenses to increase net income

Delaying the collection of accounts receivable

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Verified step by step guidance

Step 1: Understand the concept of financial ratios. Financial ratios are metrics used to evaluate a company's financial performance, such as profitability, liquidity, efficiency, and solvency. Examples include the net profit margin, current ratio, and return on equity.

Step 2: Analyze the impact of reducing unnecessary expenses. Reducing expenses directly increases net income, which positively affects profitability ratios like the net profit margin and return on equity. This is because net income is a key component in calculating these ratios.

Step 3: Evaluate the other options provided. Increasing inventory levels without increasing sales can negatively impact efficiency ratios like inventory turnover. Extending payment terms to suppliers beyond due dates may harm relationships and could lead to penalties, affecting liquidity ratios. Delaying the collection of accounts receivable can increase accounts receivable days, negatively impacting efficiency and liquidity ratios.

Step 4: Compare the options. Reducing unnecessary expenses is the most effective action to improve financial ratios because it directly enhances profitability without introducing negative consequences to other areas of financial performance.

Step 5: Conclude that reducing unnecessary expenses to increase net income is the correct action to improve financial ratios, as it positively impacts profitability and efficiency metrics.