Ratios Should Not Be Used in Isolation Because

question 20

Multiple Choice

Ratios should not be used in isolation because:

• A)different ratios may give contradictory messages.
• B)their behaviour is interrelated.
• C)a decision will often have a number of aspects.
• D)all of the above.

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Definitions:

Net Sales

Net Sales is the amount of sales generated by a company after deducting returns, allowances for damaged or missing goods, and discounts.

Accounts Receivables

Represents money owed to a company by its customers for goods or services delivered but not yet paid for.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year, calculated by dividing current assets by current liabilities.

Quick Ratio

A liquidity measure that indicates a company's ability to cover its short-term liabilities with its most liquid assets, without selling inventory.