A Ratio Calculated in the Analysis of Financial Statements

question 56

Multiple Choice

A ratio calculated in the analysis of financial statements

• A) expresses a mathematical relationship between two numbers.
• B) shows the percentage increase from one year to another.
• C) restates all items on a financial statement in terms of dollars of the same purchasing power.
• D) is meaningful only if the numerator is greater than the denominator.

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Definitions:

Inventory

The total amount of goods and materials held by a company, intended for sale or used in the production of goods to be sold.

Rising Prices

A period or condition where the general level of prices for goods and services is increasing, often measured by indices such as the Consumer Price Index (CPI).

FIFO

First-In, First-Out, an inventory valuation method where goods or materials purchased first are the first to be sold or used.

LIFO

"Last In, First Out," an inventory valuation method where the last items added to inventory are considered sold first.