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

Along with calculating the ratios, what is an essential step in effectively using financial ratios for analysis?

Comparing the ratios to industry benchmarks or prior periods

Recording the ratios in the general ledger

Using ratios only for internal management and not for external reporting

Ignoring any significant deviations in the ratios

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Verified step by step guidance

Understand the purpose of financial ratios: Financial ratios are tools used to evaluate a company's financial performance and position. They provide insights into profitability, liquidity, efficiency, and solvency.

Recognize the importance of comparison: Financial ratios are most meaningful when compared to industry benchmarks, historical data, or competitors. This helps identify trends, strengths, and weaknesses in the company's performance.

Identify relevant benchmarks: Research industry standards or averages for the specific ratios being analyzed. These benchmarks serve as a reference point to assess whether the company's ratios are favorable or require improvement.

Analyze deviations: If there are significant deviations in the ratios compared to benchmarks or prior periods, investigate the underlying causes. This could involve reviewing financial statements, operational changes, or external factors affecting the business.

Use ratios for decision-making: Financial ratios should be used to inform both internal management decisions and external reporting. They help stakeholders understand the company's financial health and guide strategic planning.