Ratios Are Used as Tools in Financial Analysis

question 191

Multiple Choice

Ratios are used as tools in financial analysis

• A) instead of horizontal and vertical analyses.
• B) because they may provide information that is not apparent from inspection of the individual components of the ratio.
• C) because even single ratios by themselves are quite meaningful.
• D) because they are prescribed by GAAP.

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Definitions:

Investment Grade

A rating that indicates a low to moderate risk of default for bonds and other securities, suggesting they are a secure investment.

Bond Ratings

Assessments assigned by rating agencies indicating the credit quality and risk level of bonds, with ratings ranging from high-grade (low risk) to high-yield (high risk).

No Par Value Stock

Shares issued without a nominal or face value, where the value of the stock is determined by the price investors are willing to pay for it in the market.

Stated Capital

The amount of capital reported by a company that represents the par value of the stock that has been issued and is often used in legal terms to determine how much capital the company can legally declare as dividends.