We can use ratios to help evaluate a firm's performance and financial position.

Question

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Ratios provide insight into a firm's financial health by comparing different parts of its financial statements. For example, a firm's current ratio (current assets divided by current liabilities) helps to evaluate its ability to pay off short-term debts. Other ratios, such as the debt-to-equity ratio or the return on equity, can help to assess a firm's overall financial performance and position.

We Can Use Ratios to Help Evaluate a Firm's Performance