Financial Accounting, Binder Ready Version: Tools for Business Decision Making
Financial Accounting, Binder Ready Version: Tools for Business Decision Making
8th Edition
ISBN: 9781118953907
Author: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso
Publisher: WILEY
Question
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Chapter 2, Problem 11Q

a.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

  • Profitability Ratios
  • Liquidity Ratios
  • Solvency Ratios

Profitability Ratio: Profitability ratio exhibits how the business is able to earn income for a specific period of time.

Liquidity Ratio: Liquidity ratio exhibits how the business is able to meet its short-term obligations and any emergency need of funds.

Solvency Ratio: Solvency ratio exhibits how the business is able to sustain over a long period of time.

To Identify: The appropriate financial ratio, a pension fund would be interested to invest in a corporations’ 20-year bonds.

b.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

  • Profitability Ratios
  • Liquidity Ratios
  • Solvency Ratios

Liquidity Ratio: Liquidity ratio exhibits how the business is able to meet its short-term obligations and any emergency need of funds.

To Identify: The appropriate financial ratio for a bank contemplating a short-term loan.

c.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

  • Profitability Ratios
  • Liquidity Ratios
  • Solvency Ratios

Profitability Ratio: Profitability ratio exhibits how the business is able to earn income for a specific period of time.

To Identify: The appropriate financial ratio for an investor in common stock.

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Chapter 2 Solutions

Financial Accounting, Binder Ready Version: Tools for Business Decision Making

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