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Unformatted text preview: gives an indication of the financial health of the firm. 3. Explain why is it important that accounting reports be prepared according to specific procedures (GAAP). If all firms prepared their accounting documents in their own way, it would be nearly impossible to compare one firm to another, or for other firms to prepare to buy one another. By keeping all documents in a standard form, it allows businesses to see more clearly how others are doing in their field, as well as others. 4. What value do financial ratios offer in reviewing the financial performance of a firm? Financial ratios allow firms to compare with other firms that may not be doing business on as large of a scale as one another. Say one firm has profits of $1 Million, with $500,000 of assets, while another has profits of $4 Million with assets of $3 Million. The first firm had a better ratio of 2:1 versus 3:4 with the other firm, even thought the first firm only made $1 Million....
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- Spring '10