[Claudia408]

What’s the thought process when you are asked a question about the affect on certain financial ratios when X, or Y happens?

I write down the formula and think which accounts are affected, what goes up or down, but I’m going in the opposite direction sometimes and I get the answer wrong. Any tips?

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[TiredGACandidate]

Can you list a specific example? That might help give a better understanding of what you're specifically having trouble with.

BEC - 76
REG - 82
FAR - 55, 84
AUD - 72,67, 88
Done!!

[Anonymous]

Keep doing what you're doing, but substitute numbers for your ratio and work it through. The alternative to calculating the effect is memorizing this: an increase (decrease) of equal size to the numerator and denominator will increase (decrease) a ratio when the ratio is <1. If the ratio is above 1, equal increases will decrease the ratio and equal decreases will increase the ratio.

For example, say your ration is 3/10 (which is equal to .3). Increasing both the numerator/denominator by 5 makes it 8/15. 8/15 = .53, so your ratio has increased. If we decrease both the numerator/denominator by 2, we get 1/8, which is = .125, so your ratio has decreased

If instead your ratio is above 1, say 8/4 (which is equal to 2), increasing both the numerator/denominator by 5 makes it 13/9, which is equal to 1.4. In this case, since the original ration was above 1, equal increases to the numerator/denominator decreased the ratio. If we instead decrease both by 2, we get 6/2, or 3. Equal decreases to the numerator/denominator increased the ratio.

Hope that helps!

[Claudia408]

LOL I had so many examples when I was practicing MCQs now I can't find them!

But thank you, I will try it!

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[Author]

Replies