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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Which of the following best describes the purpose of financial ratios in accounting?

They are only relevant for non-profit organizations.

They are used solely to calculate a company's tax liability.

They provide a detailed list of all company assets and liabilities.

They help analyze a company's financial performance by comparing relationships between different financial statement items.

Previous problemNext problem

Verified step by step guidance

Understand the concept of financial ratios: Financial ratios are tools used in accounting to evaluate a company's financial performance and position by analyzing relationships between various items in the financial statements.

Recognize the purpose of financial ratios: They are not limited to non-profit organizations, nor are they solely used for tax calculations. Instead, they provide insights into a company's operational efficiency, profitability, liquidity, and solvency.

Identify the types of financial ratios: Common categories include liquidity ratios (e.g., current ratio), profitability ratios (e.g., net profit margin), efficiency ratios (e.g., inventory turnover), and solvency ratios (e.g., debt-to-equity ratio).

Understand how financial ratios are calculated: For example, the current ratio is calculated as \( \text{Current Assets} \div \text{Current Liabilities} \), and the net profit margin is calculated as \( \text{Net Income} \div \text{Revenue} \).

Conclude the purpose: Financial ratios help stakeholders, such as investors and management, analyze and compare financial performance over time or against industry benchmarks, aiding in decision-making processes.