Why Do Decision-Makers Analyze Financial Statements and How Is Ratio

question 57

Essay

Why do decision-makers analyze financial statements and how is ratio analysis useful in the process?

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Definitions:

Net Operating Income

The profit generated from a business's normal core operations, excluding deductions of interest and taxes.

Variable Costing

An accounting method that only includes variable production costs—direct materials, direct labor, and variable manufacturing overhead—in product cost.

Unit Product Cost

Unit product cost is the total expense incurred to produce, assemble, and prepare a single unit for sale, encompassing both direct costs and allocated overheads.

Absorption Costing

An accounting method that includes both variable and fixed manufacturing costs in the cost of a product, used for external reporting.