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 an example of an important financial ratio?

Gross Sales

Total Assets

Net Income

Current Ratio

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Verified step by step guidance

Understand the concept of financial ratios: Financial ratios are tools used to evaluate a company's financial performance and condition by comparing different financial metrics. They provide insights into liquidity, profitability, efficiency, and solvency.

Learn about the Current Ratio: The Current Ratio is a liquidity ratio that measures a company's ability to pay short-term obligations with its short-term assets. It is calculated using the formula:

\frac{Current Assets}{Current Liabilities}

Differentiate between financial ratios and other metrics: Gross Sales, Total Assets, and Net Income are individual financial metrics, not ratios. Financial ratios, like the Current Ratio, involve a comparison or relationship between two metrics.

Recognize the importance of the Current Ratio: A higher Current Ratio indicates better liquidity, meaning the company is more capable of meeting its short-term obligations. It is a key indicator for creditors and investors.

Apply the concept: To calculate the Current Ratio for a company, identify its Current Assets and Current Liabilities from the balance sheet, then use the formula provided to compute the ratio.