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:

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including materials and labor.

Income Tax Expense

The amount of income tax a company owes to federal, state, or local authorities, recognized as an expense in the period it is incurred.

Income Tax Payable

The amount of income tax a company owes to the government but has not yet paid.

Cash Paid

The total amount of cash disbursed by a business for various purposes, such as operating expenses, purchases, and investments.