To Effectively Use Operating Ratios, a Prospective Buyer Should ______

question 10

Multiple Choice

To effectively use operating ratios, a prospective buyer should ______.

• A) compare them to industry standards
• B) use them to identify problems that exist and make changes
• C) use them as a basis for valuing the business
• D) compare them to the closest competitor

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Definitions:

Gross Profit

The financial gain obtained by subtracting the cost of goods sold from the revenue generated from sales, excluding operating expenses.

Sales Discounts

Reductions in the price of goods or services offered by a seller to a buyer to encourage prompt payment.

Sales Returns

Refers to goods that are returned by the customer to the seller after the sale, often due to defects or dissatisfaction.

Operating Expenses

The costs associated with running a business's day-to-day operations, excluding the cost of goods sold.