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D076 - Finance by ME (Lesson Checks) questions and answers.
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D076 - Finance by ME (Lesson Checks) questions and answers.
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D076 - Finance by ME(Lesson Checks)
questions and answers
Which statement below is an example of how ratios
are used in the field of finance?
a) A firm's ratios are compared with those of a
benchmark peer group to determine the firm's
relative strength and performance.
Correct! This is called cross-sectional analysis and
is common in financial analysis.
b) A firm's ratios may vary year over year, so they
are not helpful for evaluating whether firm goals
are met.
c) Ratios are helpful only when comparing
companies that are the same size and that use the
same operational style.
d) Ratio analysis is performed based on a strict set
of rules governed by generally accepted
accounting principles. - answer a) A firm's ratios
are compared with those of a benchmark peer
group to determine the firm's relative strength and
performance.
, This is called cross-sectional analysis and is
common in financial analysis.
Why are ratios considered flexible?
a) Because they are not regulated and can be
changed or invented according to a firm's needs
Correct! Because financial ratios are an internal
management tool, they are not subject to external
rules and regulations.
b) Because there are five ratios that must always
be calculated and then reported on public financial
statements
c) Because they are based on estimates and thus
do not have to be exact
d) Because they do not require historical financial
data in order to analyze a firm - answer a) Because
they are not regulated and can be changed or
invented according to a firm's needs
Because financial ratios are an internal
management tool, they are not subject to external
rules and regulations.
How might calculating financial ratios help
shareholders?
a) Ratios can be used to determine whether a firm
is maximizing shareholder wealth.
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