Ratios are used as tools in financial analysis
A) instead of horizontal and vertical analyses.
B) because they can provide information that may not be apparent from inspection of the individual components of the financial statements.
C) because even single ratios by themselves are quite meaningful.
D) because they are prescribed by GAAP.

Question

Quizplus · Accepted Answer

Ratios provide insight into the relationships between different financial statement items, which may not be immediately apparent from just looking at the individual items. They can help identify trends, strengths, and weaknesses in a company's financial performance. Ratios are not prescribed by GAAP, but they are widely used in financial analysis. While individual ratios may be meaningful, it is their comparison to industry standards or historical trends that provide the most valuable information.

Ratios Are Used as Tools in Financial Analysis