Financial Ratios Can Help You to Ask the Right Questions

question 22

True/False

Financial ratios can help you to ask the right questions but they rarely answer these questions on their own.

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Definitions:

Economic Profits

The difference between a firm's total revenues and its total costs, including both explicit and implicit costs.

Accounting Profits

The net income for a company after all expenses have been deducted from revenues, according to generally accepted accounting principles.

Implicit Costs

The opportunity costs of using resources owned by the company for its own operations, rather than earning income elsewhere.

Explicit Costs

Direct payments made to others in the course of running a business, such as wages, rent, and materials.