Ratios Should Not Be Used in Isolation Because

question 27

Multiple Choice

Ratios should not be used in isolation because:

• A) their behaviour is inter-related.
• B) different ratios may give contradictory messages.
• C) a decision will often have a number of aspects.
• D) all of the above.

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Definitions:

Cash Flows

signify the net amount of cash being transferred into and out of a business, crucial for assessing liquidity, flexibility, and overall financial health.

Net Present Value

A financial metric that calculates the value of a series of cash flows by discounting them to their present value, used to assess the profitability of investments.

Cost of Capital

The return rate that a firm needs to achieve to cover the cost of generating funds in the marketplace, essentially what it must pay in order to use capital.

Living Standards

The level of wealth, comfort, material goods, and necessities available to a certain socioeconomic class or geographic area.