Ratios Are Useful in Explaining The

question 7

Multiple Choice

Ratios are useful in explaining the:

• A)relationships between financial data.
• B)differences between companies.
• C)trends within industries.
• D)reasons for financial performance.

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income, influenced by the proportion of fixed to variable costs.

Fixed Costs

Fixed Costs are business expenses that remain constant regardless of the level of production or sales activity, such as rent, salaries, and insurance.

Profit-volume Chart

A Profit-Volume Chart is a graphical representation that shows the relationship between a firm's profits and its volume of sales, illustrating the impact of different sales levels on profits.

Total Sales Revenues

The total income received by a company from its sales of goods or services, before any expenses are subtracted.