Of the Following Statements About Financial Ratios,which Is NOT True

question 56

Multiple Choice

Of the following statements about financial ratios,which is NOT true?

• A) Financial ratios are designed to assess different aspects of the firm's financial situation.
• B) Financial ratios enable meaningful comparisons among companies of different sizes to assess which companies are performing better and which are performing worse.
• C) A low current ratio implies that a company has adequate liquidity to carry out business operations.
• D) A rule of thumb is that companies should have a current ratio between 1 and 2.
• E) The current ratio is often important in debt covenants.

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Definitions:

Target Costing

A pricing strategy in which the selling price and profit margin are used to determine the maximum cost that can be incurred on a product, with the aim of ensuring competitiveness and profitability.

Target Profit

The specific net income a business intends to reach within a designated timeframe.

Price Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good.

Target Costing

A pricing method that involves determining a product's selling price and then subtracting desired profit to arrive at a target production cost.