Problem with Ratio Analysis Is That Relationships Can Be Manipulated

question 22

True/False

problem with ratio analysis is that relationships can be manipulated For example, if our current ratio is greater than 1.5, then borrowing on a short-term basis and using the funds to build up our cash account would cause the current ratio to increase.

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Definitions:

Closely Held Corporations

Companies whose shares are owned by a small group of individuals or families, often with restricted stock sales.

Parent-subsidiary Relationships

The connection between a parent company that controls another company (subsidiary) through ownership of a majority of voting stock or influence.

RMBCA

Stands for the Revised Model Business Corporation Act, which is a model set of laws proposed to standardize the regulation of corporations across the United States.

Adopted

Refers to the acceptance or taking on of something, such as a law, resolution, amendment, or child, as one's own.