One Problem with Ratio Analysis Is That Relationships Can Be

question 96

True/False

One problem with ratio analysis is that relationships can be manipulated.For example, we know that if our current ratio is less than 1.0, then using some of our cash to pay off some of our current liabilities would cause the current ratio to increase and thus make the firm look stronger.

Calculate the degree of operating leverage and interpret its effects on a company’s operating income.

Assess the impact of changes in variable costs and sales volume on net operating income.

Determine the margin of safety in both dollar terms and as a percentage.

Analyze the effects of a change in sales mix on the break-even point and net operating income.

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Definitions:

Age

The length of time that an individual or entity has existed, typically measured in years.

Grateful Dead Concert

A live performance by the Grateful Dead, an American rock band known for their eclectic style and devoted fan base.

Age

A measurement of the amount of time an individual or object has existed from its birth or creation to a specific date.

Pearson Correlation Coefficient

A statistical measure of the linear correlation between two variables, ranging from -1 to 1, where 1 indicates a perfect positive linear relationship.