Which of the following is true of the application of ratio analysis?
A) These are as reliable as the source data.
B) Analysts should use simple rules of thumb when applying these.
C) These represent causes, not effects.
D) Accounting estimates in the data do not impact ratios.
A
Explanation: A) When applying financial ratios, the inputs to these ratios (the balance sheet and income statement items that act as numerators and denominators) must be examined for validity. After all, the results of financial statements analysis (or any type of analysis) are only as reliable as the source data.
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Consider a single cash flow of 100 in five years. If the futurity is shortened to four years, holding interest/discount rates constant:
a) its price rises b) its price falls c) its price is unchanged d) none of the above
Paul would like to buy his first home (an awesome 3 bedroom on a quiet street with a beautiful tree in the front!). The home is listed for $200,000 and he needs to come up with a down payment of $40,000. Paul starts by looking at his most liquid assets to come up with the necessary down payment. Which of the following are the most "liquid" of Paul's options:
A. $15,000 in a money market mutual fund. B. $20,000 in his savings account. C. $5,000 in his checking account.