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

1. Introduction to Accounting

Types of Accounting

Financial Accounting

1. Introduction to Accounting

Types of Accounting

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Multiple Choice

Which type of financial ratio can reveal that a company is relying too much on borrowed money?

Inventory turnover ratio

Current ratio

Gross profit margin

Debt-to-equity 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 health and performance. Each ratio provides insights into specific aspects of the company's operations or financial structure.

Learn about the debt-to-equity ratio: This ratio measures the proportion of debt financing relative to equity financing in a company. It is calculated using the formula:

\frac{Debt}{Equity}

. A high debt-to-equity ratio indicates that a company is relying heavily on borrowed money.

Compare the debt-to-equity ratio with other ratios: Inventory turnover ratio measures how efficiently inventory is managed, current ratio assesses short-term liquidity, and gross profit margin evaluates profitability. None of these directly indicate reliance on borrowed money like the debt-to-equity ratio does.

Interpret the implications of a high debt-to-equity ratio: If the ratio is significantly high, it suggests that the company may face higher financial risk due to its dependence on debt financing. This could lead to challenges in meeting interest obligations or maintaining financial stability during economic downturns.

Apply this knowledge to analyze financial statements: When reviewing a company's financial statements, calculate the debt-to-equity ratio to assess its reliance on borrowed money. Use this ratio alongside other financial metrics to form a comprehensive understanding of the company's financial health.