The Measurement Of Key Relations Among Financial Statement Items Is Known As
The correct choice of this multiple choice question is (C), as ratio analysis is used to express the relationship between items or accounts of Financial Statements. For example, Current Ratio is used to show the relationship between Current Assets and Current Liabilities . If the company has more current assets than its current liabilities then its business can easily meet daily expenses and pay short-term obligations to run the daily operations of the business and may earn revenue for the period. If the current ratio is more than 1, then the business can easily meet current liabilities. If it is less than 1, then the business is unable to meet its current liabilities with current assets. This is critical for the continuity and survival of the business as it may fail to carry on the business i.e., unable to pay its short-term debts necessary to run the business and as a result the business operations are stopped and business suffered the losses. If the current ratio is equal to 1, t...