Why Is a Ratio Usually a Better Calculation Than a Simple

question 6

Multiple Choice

Why is a ratio usually a better calculation than a simple difference?

• A) It adjusts for magnitude of the base value by context.
• B) It provides a smaller number for comparison.
• C) It can be represented by any measure.
• D) It can be converted into a percentage value.

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Definitions:

Capital Budgeting

The method by which a business analyzes prospective large-scale projects or investments.

Borrowing Power

The maximum amount of money a person or entity can borrow based on their financial situation.

Discount Rate

Discount Rate is the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.

Weighted Average Cost

A calculation of the overall cost of goods that are sold, based on the proportionate cost of all items in inventory, factoring in both the cost and the quantity of each item.