Unlock the secret code of finance with Accounting Ratios! These enchanting calculations turn dizzying numbers from financial statements into insightful nuggets of wisdom about a company’s performance and position. Think of them as the company’s magical health check-up report. 🧙♂️✨
What Are Accounting Ratios? 🎩💰
Accounting Ratios (a.k.a. financial ratios) are like a wizard’s potion — they mix different numbers extracted directly from a company’s financial statements and transform them into an elixir of knowledge. With the perfect potion (or ratio), you can grasp how a company is doing financially.
Ratios can take many forms:
- Percentages: Like return on capital employed, they tell you what percentage of input becomes profit. Magic, indeed.
- Days: The debtor collection period tells you how many days it takes to get your well-earned bucks back.
### What is an accounting ratio?
- [ ] An exact number
- [x] A proportion of figures from financial statements
- [ ] A magic trick
> **Explanation:** An accounting ratio is a proportion calculated from financial statement figures.
### Which of the following is an example of an accounting ratio?
- [x] Inventory Turnover
- [ ] Super Mario’s coins collected
- [ ] Car's speed
> **Explanation:** Inventory Turnover is a commonly used accounting ratio.
