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Updating user-defined function to do subtraction

The function you worked on in the previous exercise cannot do subtraction. Have a look at this function:

def compute_ratio(df, numerator, denominator, ratio_name, 
                  addition_in_numerator = True,
                  addition_in_denominator = True):
  numerator_of_ratio = np.where(addition_in_numerator,
                             df[numerator].sum(axis=1), 
                             df[numerator[0]] - df[numerator[1:]].sum(
                               axis=1))
  denominator_of_ratio = np.where(addition_in_denominator, 
                               df[denominator].sum(axis=1), 
                               df[denominator[0]] - df[denominator[1:]].sum(axis=1))
  df[ratio_name] = numerator_of_ratio/denominator_of_ratio
  return df

This function can deal with addition and subtraction in numerators and denominators of financial ratios. Notice that the function uses np.where. This is a function from the package NumPy. np.where checks if the first argument is True; if so, it returns the second argument, else it returns the third. For example, in the above, we have:

np.where(addition_in_numerator,
                             df[numerator].sum(axis=1), 
                             df[numerator[0]] - df[numerator[1:]].sum(
                               axis=1))

If addition_in_numerator is true, np.where will return df[numerator].sum(axis=1), else it will return df[numerator[0]] - df[numerator[1:]].sum(axis=1).

In this exercise, the balance_sheet DataFrame, along with pandas and NumPy aspd and np, respectively, have been loaded for you. Use these to determine which of the following statements is correct.

This exercise is part of the course

Analyzing Financial Statements in Python

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