One Problem with Ratio Analysis Is That Relationships Can Be

question 96

True/False

One problem with ratio analysis is that relationships can be manipulated.For example, we know that if our current ratio is less than 1.0, then using some of our cash to pay off some of our current liabilities would cause the current ratio to increase and thus make the firm look stronger.

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Definitions:

Retained Earnings

Profits that a company keeps or retains rather than distributing to shareholders as dividends, often used for reinvestment.

Taxable Income

The amount of income subject to tax, after deductions and exemptions, as determined by tax laws.

Quarterly Dividends

These are dividends paid by a corporation to its shareholders every three months, or four times a year, representing a portion of the company's earnings.

Book Value

The net value of a company's assets minus its liabilities and intangible assets, often used as a measure of a company's actual worth.