14. What is the process of calculating and interpreting financial ratios to assess a company's performance called?

• A. Vertical analysis
• B. Ratio analysis
• C. Horizontal analysis
• D. Trend analysis

Answer: (B)

Verified step by step guidance

1. Understand the concept of financial ratios: Financial ratios are quantitative tools used to evaluate a company's financial performance and position by comparing various financial statement items.
2. Learn the purpose of ratio analysis: Ratio analysis involves calculating and interpreting financial ratios to assess aspects such as profitability, liquidity, efficiency, and solvency of a company.
3. Differentiate ratio analysis from other methods: Vertical analysis focuses on analyzing financial statement items as a percentage of a base figure, while horizontal analysis examines changes over time. Trend analysis identifies patterns or trends in financial data over multiple periods.
4. Recognize the application of ratio analysis: Ratio analysis is widely used by investors, creditors, and management to make informed decisions about a company's financial health and operational efficiency.
5. Conclude that the process described in the problem is ratio analysis, as it specifically involves calculating and interpreting financial ratios to assess performance.