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 best describes the primary purpose of financial ratios in evaluating a firm?

To assess the operating performance and financial health of the firm.

To determine the firm's market share in the industry.

To record daily transactions in the firm's accounting system.

To calculate the amount of taxes owed by the firm.

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Verified step by step guidance

Understand the concept of financial ratios: Financial ratios are tools used to evaluate a firm's financial health and operating performance by analyzing relationships between various financial statement items.

Identify the primary purpose of financial ratios: Financial ratios are primarily used to assess the firm's ability to generate profits, manage assets, and meet financial obligations, rather than recording transactions or calculating taxes.

Eliminate incorrect options: Recording daily transactions and calculating taxes are functions of accounting systems and tax preparation, not financial ratios. Similarly, determining market share is a strategic analysis, not a direct purpose of financial ratios.

Focus on the correct option: The correct purpose of financial ratios is to assess the operating performance and financial health of the firm, as they provide insights into profitability, liquidity, efficiency, and solvency.

Conclude the reasoning: Financial ratios are essential for stakeholders, such as investors and creditors, to make informed decisions about the firm's financial stability and operational effectiveness.