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Which four of the following statements about accounting ratios are correct?
1. They are useful when comparing a business results from one year to the next
2. Gearing will indicate how risky a business is
3. Interest cover will give an investor information about whether or not a dividend will be paid
4. If there is an increase in any calculated accounting ratio, it is seen as favourable
5. They help the user of financial information to focus attention on significant issues
6. They can provide information about the profitability, liquidity, efficiency and position of the company
7.Ratios can be affected by a business choice of accounting policies
8.They provide all the information needed for interpreting company accountsSir , what is your view on this ,as to me five statements seems to be correct (1,2,5,6,7)
5 is not really correct because it is up to the user to decide which matters are significant and then decide what ratios are most relevant.
What does the printed answer in your book say?
5 is not really correct because it is up to the user to decide which matters are significant and then decide what ratios are most relevant.
What does the printed answer in your book say?
Falls in inventory holding period may be due to:
-bulk buying to take advantage of trade (bulk) discounts
– increasing inventory levels to avoid stockouts (For example, due to erratic demand or where supply is unreliable).This is taken from Study Hub. I don’t get the logic. If we increase our inventory without a corresponding increase in our sales, doesn’t this worsen our inventory holding period?
Or do these two statements assume that the sales also increase correspondingly?
You are correct and it sounds as though there is an error in the Study Hub. If you tell me which page then I will check and report it to them.
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