Question : The objectives of Ratio Analysis are
Option 1: To locate the weak spots of business which need more attention.
Option 2: To provide a deeper analysis of the liquidity, solvency, activity and profitability of the business.
Option 3: To provide information for making a cross-sectional analysis, i.e., for making a comparison with that of some selected firms in the same industry.
Option 4: All of the above
Correct Answer: All of the above
Solution : Answer = All of the above.
All of the above objectives of ratio analysis are true. It helps identify weaknesses in the business, provides comprehensive insights into liquidity, solvency, activity, and profitability, and facilitates cross-sectional analysis by comparing with similar firms in the industry for benchmarking and improvement. Hence, the correct option is 4.
Question : Which of the following is not the objective of Ratio Analysis?
Option 1: Calculate profit and loss of the business
Option 2: To provide deeper analysis of the liquidity, solvency, activity and profitability of the business.
Option 3: To provide information for making time-series analysis, i.e., for making comparison of a firm’s present ratios with its past ratios.
Option 4: To provide information useful for making estimates and preparing the plans for the future
Question : Which of the following is not the Objective of Ratio Analysis?
Option 1: To identify the areas of the business that require more attention
Option 2:
Not provide data for cross-sectional analysis, for comparison with some chosen enterprises in the same industry
Option 3:
To give a more thorough study of the business's liquidity, solvency, activity, and profitability
Option 4: To provide data that will be beneficial for estimating and creating future strategies
Question : Which ratios provide information critical to the firm's long-term operation?
Option 1: Profitability
Option 2: Solvency
Option 3: Activity
Option 4: Liquidity
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