What can be inferred if a company has a high financial ratio?

What can be inferred if a company has a high financial ratio?

• A. It indicates poor performance.
• B. It indicates strong financial health.
• C. It is irrelevant to the company’s performance.
• D. It signifies impending bankruptcy.

Answer: (B)

A high financial ratio generally suggests strong financial health for a company because it often reflects positive attributes, such as effective management of resources, strong profitability, or sound liquidity. For example, if a company has a high return on equity (ROE) ratio, it indicates that the company is generating a good return on investors’ capital. Similarly, a high current ratio suggests that the company is well-positioned to meet its short-term obligations, indicating solidity in its financial stability. These positive indicators contribute to the perception that the company is performing well relative to its peers or to previous periods, thereby aligning with the inference that high financial ratios signify strong financial health.

A high financial ratio generally suggests strong financial health for a company because it often reflects positive attributes, such as effective management of resources, strong profitability, or sound liquidity. For example, if a company has a high return on equity (ROE) ratio, it indicates that the company is generating a good return on investors’ capital. Similarly, a high current ratio suggests that the company is well-positioned to meet its short-term obligations, indicating solidity in its financial stability. These positive indicators contribute to the perception that the company is performing well relative to its peers or to previous periods, thereby aligning with the inference that high financial ratios signify strong financial health.