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

Ratios: Earnings Per Share (EPS)

Financial Accounting

14. Financial Statement Analysis

Ratios: Earnings Per Share (EPS)

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Multiple Choice

Which ratio was primarily designed to monitor firms with negative earnings?

Price-to-Sales (P/S) Ratio

Earnings Per Share (EPS)

Current Ratio

Return on Equity (ROE)

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Understand the purpose of each ratio mentioned in the problem: Price-to-Sales (P/S) Ratio, Earnings Per Share (EPS), Current Ratio, and Return on Equity (ROE).

Recognize that firms with negative earnings cannot use ratios that rely on net income, such as Earnings Per Share (EPS) or Return on Equity (ROE), because these ratios would be distorted or meaningless.

Identify that the Price-to-Sales (P/S) Ratio is designed to evaluate firms regardless of their earnings, as it uses sales revenue instead of net income in its calculation.

Note that the Current Ratio is a liquidity ratio and is not specifically designed to monitor firms with negative earnings; it measures a firm's ability to pay short-term obligations.

Conclude that the Price-to-Sales (P/S) Ratio is the most appropriate ratio for monitoring firms with negative earnings, as it focuses on sales rather than profitability.