What Is an Advantage of Using Ratio Analysis in Comparing

question 3

Multiple Choice

What is an advantage of using ratio analysis in comparing financial statements from different countries?

• A)Ratios are expressed as percentages, making currency differences irrelevant to the analysis.
• B)Ratios highlight the holding gains or losses related to currency translation.
• C)Purchasing power gains and losses from currency translation show up clearly in ratio analysis.
• D)Comparing business ratios across countries removes the effect of economic conditions and business culture.

Calculate key financial ratios including profit margin, gross margin, times interest earned, current ratio, acid-test ratio, debt ratio, equity ratio, inventory turnover, days' sales in inventory, accounts receivable turnover, and days' sales uncollected.

Interpret the financial health and performance of companies through ratio analysis.

Identify and compute ratios for assessing a company's profitability, liquidity, and solvency.

Evaluate short-term credit risk and profitability using financial ratios.

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Definitions:

Noncash Transfers

Types of government assistance such as food stamps and housing vouchers that provide benefits other than direct cash payments.

Income Inequality

Income inequality refers to the unequal distribution of income among a population, often measured using various statistical methods to illustrate disparities in wealth.

Housing Subsidies

Financial assistance provided by a government or organization to help individuals or families afford housing, typically to reduce housing expenses to a manageable level.

Low-Income Households

Low-income households are those whose total income falls below a certain threshold, designated by governmental policies, indicating they earn significantly less than the country's median or average household income.