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 statements about the combined ratio is true?

The combined ratio is only used to analyze the liquidity of manufacturing firms.

The combined ratio is calculated by dividing net income by total assets.

The combined ratio measures the profitability of an insurance company by adding the loss ratio and the expense ratio.

A combined ratio above 100% indicates that an insurance company is making an underwriting profit.

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Verified step by step guidance

Understand the concept of the combined ratio: The combined ratio is a key metric used in the insurance industry to measure profitability. It is calculated by adding the loss ratio (claims paid divided by premiums earned) and the expense ratio (operating expenses divided by premiums earned).

Clarify the purpose of the combined ratio: It is specifically used to evaluate the underwriting performance of insurance companies, not manufacturing firms or other industries.

Interpret the combined ratio: A combined ratio below 100% indicates an underwriting profit, meaning the company is earning more from premiums than it is spending on claims and expenses. Conversely, a combined ratio above 100% indicates an underwriting loss.

Identify the incorrect statements: The combined ratio is not used to analyze liquidity, nor is it calculated by dividing net income by total assets. These are unrelated concepts.

Confirm the correct statement: The combined ratio measures the profitability of an insurance company by adding the loss ratio and the expense ratio. A combined ratio above 100% indicates an underwriting loss, not a profit.