Financial ratios
I. allow comparisons across firms without concern over firm size.
II. can compare a firm's operating and financial status to industry norms.
III. reflect the future outlook for a firm as well as past performance.
IV. look at the liquidity, activity, leverage, profitability and market measures of a firm.
A) II and IV only
B) I and II only
C) I, II and IV only
D) I, II, III and IV

Question

Quizplus · Accepted Answer

Financial ratios allow for comparisons across firms without concern over firm size and can compare a firm's operating and financial status to industry norms. They also look at the liquidity, activity, leverage, profitability and market measures of a firm. However, they typically reflect past performance and may not necessarily reflect the future outlook for a firm. Therefore, statement III is not correct, making option D incorrect. Option B is also incorrect as it only includes the first two correct statements. Thus, the best choice is C, which includes all the correct statements.

Financial Ratios I. Allow Comparisons Across Firms Without Concern Over Firm Size