A financial ratio by itself is of little value. To what can you compare your financial ratios to make them valuable financial planning tools?
What will be an ideal response?
Answer: Financial ratios can be compared to historical ratios, projected or budgeted ratios, expert advice, or industry averages. If I knew my savings ratio for 2013 was 6 percent and my savings ratio for 2015 is 8 percent, then I know I have made an improvement in freeing up cash for savings and investment. If I budgeted my savings ratio for 2015 to be 10 percent and it is currently running at 8 percent, then I know I am not on track to meet my budgeted goals for the year. I can then analyze my income and expenditures to see why I am not on track to meet my goals, or possibly my goals were not realistic based on current conditions. If my savings ratio is currently 8 percent and the experts say that the ideal or average savings ratio should be 15 percent, then I can measure how well I'm doing compared to these benchmarks and adjust accordingly.
You might also like to view...
If the interest rate on an FHA-insured mortgage loan is 5 1/2 percent and the monthly payment is $1,012 the principal sum would be
A) $22,080 B) $220,800 C) $184,000 D) $667,920
Lithotech, Inc had net sales in 2016 of $700,000. At December 31, 2016, before adjusting entries, the balances in selected accounts were: accounts receivable $125,000 debit, and allowance for doubtful accounts $1,200 debit. Lithotech estimates that 2% of its net sales will prove to be uncollectible. What is the cash realizable value of the receivables reported on the statement of financial
position at December 31, 2016? A) $109,800 B) $111,000 C) $112,200 D) $122,500