One of the Problems of Ratio Analysis Is That Account

question 71

True/False

One of the problems of ratio analysis is that account relationships can be manipulated. For example, we know that if we use some of our cash to pay off some of our current liabilities, the current ratio will always increase, especially if the current ratio is low initially, for example, below 1.0.

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Definitions:

Balance Sheet

A financial statement that displays a company's financial position at a specific point in time, listing assets, liabilities, and equity.

Probable

Likely to occur or to be true, often used in accounting to describe the likelihood of a future event affecting financial statements.

Working Capital

The measure of a company's operational liquidity, calculated as current assets minus current liabilities.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or the operating cycle, whichever is longer.