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Financial Ratio Understanding

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Why is it important to understand the calculation and interpretation of ratios to complete a financial ratio analysis? Please provide pros and cons.

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Solution Summary

This solution explains why it is important to understand the calculation and interpretation of ratios to complete a financial ratio analysis. The pros and cons of having a thorough understanding are also provided.

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The main advantage in really understanding financial ratios well and knowing how to interpret them is that it allows us to see exactly how the changes have taken place in a certain time period. We can perform a ratio analysis and determine how assets are being utilized now as compared to three months ago or a year ...

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