Ratio analysis is used to
A) assess the relationship between various financial statement balances.
B) evaluate the profitability of the audit client.
C) assess the audit client's return on investment.
D) assess the liquidity of the audit client.

Question

Quizplus · Accepted Answer

Ratio analysis involves comparing different financial statement balances to understand the relationship between them. It helps to assess the financial health of a company and identify strengths and weaknesses of its operations, financial structure, and management. Ratio analysis can be used to evaluate liquidity, profitability, efficiency, solvency, and performance of the audit client. However, it is not directly used to assess the return on investment, which requires additional analysis of cash flows, capital investments, and risk factors.

Ratio Analysis Is Used to