Multiple Choice
Which of the following is NOT a category of financial statement ratios?
42
views
14. Financial Statement Analysis
Introduction to Ratios
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Which of the following financial ratios is NOT a component of the Altman Z-score model?
A
Retained Earnings to Total Assets
B
Current Ratio
C
Earnings Before Interest and Taxes to Total Assets
D
Working Capital to Total Assets
Verified step by step guidance1
Step 1: Understand the Altman Z-score model. The Altman Z-score is a formula used to predict the likelihood of a company going bankrupt. It combines several financial ratios to assess a company's financial health.
Step 2: Identify the components of the Altman Z-score model. The formula includes the following ratios: Working Capital to Total Assets, Retained Earnings to Total Assets, Earnings Before Interest and Taxes (EBIT) to Total Assets, Market Value of Equity to Book Value of Total Liabilities, and Sales to Total Assets.
Step 3: Compare the given options to the components of the Altman Z-score model. Check each ratio provided in the problem against the components of the model to determine which one is not included.
Step 4: Note that the 'Current Ratio' is not part of the Altman Z-score model. The Current Ratio measures a company's ability to pay short-term obligations, but it is not one of the ratios used in the Altman Z-score formula.
Step 5: Conclude that the correct answer is 'Current Ratio,' as it is not a component of the Altman Z-score model.
8:33mWatch next
Master Introduction to Ratios with a bite sized video explanation from Brian
Start learningRelated Videos
Related Practice
Introduction to Ratios practice set
Problem sets built by lead tutorsExpert video explanations