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Managerial Accounting

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MANAGERIAL ACCOUNTING QUESTIONS 1
Managerial Accounting Questions
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MANAGERIAL ACCOUNTING QUESTIONS 2
Managerial Accounting Questions
PART 1
Describe the 3 main categories of ratios and provide a specific example of a ratio that is
used in each category. For each of the 3 ratios you selected, describe how it is used in
managerial decision-making.
Generally, financial ratios are used by businesses and analysts to help them develop a
better understanding of how a business is fairing financially. Rather than looking at huge figures
to understand the financial health of a business, financial firms and analysts seek to calculate
financial ratios, which often simplify financial information (Edmonds et al., 2016). In addition to
this, financial ratios also enable businesses to make effective financial decisions as they are in a
position to better visualize their financial performance. Nonetheless, there exist several
categories of financial ratios. The three main categories are profitability ratios, liquidity ratios
and leverage ratios.
Profitability ratios are one of the major categories of financial ratios and are commonly
applied in almost every business. These ratios assess businesses ability to generate earnings
relative to its revenue, operating costs, balance sheet assets, or shareholder’s equity at a specific
point in time (Edmonds et al., 2016). Simply, profitability ratios show how well a business
utilizes its assets to generate profit and value for its shareholders. Usually, companies seek
higher profitability ratios since the higher the ratio, the more efficient a business produces profits
relative to revenue, balance sheet assets, operating costs, and shareholders’ equity. While
profitability ratios are divided into two major subcategories, return and margin ratios. However,
the net profit margin is one of the key main profitability ratios (Edmonds et al., 2016). The latter

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MANAGERIAL ACCOUNTING QUESTIONS Managerial Accounting Questions Student’s Name Course Title Institution Date 1 MANAGERIAL ACCOUNTING QUESTIONS 2 Managerial Accounting Questions PART 1 Describe the 3 main categories of ratios and provide a specific example of a ratio that is used in each category. For each of the 3 ratios you selected, describe how it is used in managerial decision-making. Generally, financial ratios are used by businesses and analysts to help them develop a better understanding of how a business is fairing financially. Rather than looking at huge figures to understand the financial health of a business, financial firms and analysts seek to calculate financial ratios, which often simplify financial information (Edmonds et al., 2016). In addition to this, financial ratios also enable businesses to make effective financial decisions as they are in a position to better visualize their financial performance. Nonetheless, there exist several categories of financial ratios. The three main categories are profitability ratios, liquidity ratios and leverage ratios. Profitability ratios are one of the major categories of financial ratios and are commonly applied in almost every business. These ratios assess businesses ability to generate earnings relative to its revenue, operating costs, balance sheet assets, or shareholder’s equity at a specific point in time (Edmonds et al., 2016). Simply, profitability ratios show how well a business utilizes its assets to ...
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