Which of the Following Statements Concerning Financial Ratios Is Incorrect

question 32

Multiple Choice

Which of the following statements concerning financial ratios is incorrect?

• A)Accounting principles and methods used by a company will not affect financial ratios.
• B)The informational value of a ratio in isolation is limited.
• C)A ratio is one number expressed as a percentage or fraction of another number.
• D)Calculation of financial ratios is not sufficient for a complete financial analysis of a company.

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Definitions:

Equity Method

An accounting approach used for recording investments in associate companies where the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor's share of the net assets of the investee.

Profit-Oriented Entity

A business whose primary goal is to generate profits rather than focusing on other goals such as social impact or environmental sustainability.

Fair Value

The financial return from disposing of an asset or expense of transferring a liability in a systematic transaction with market entities at the point of measurement.

Carrying Value

The book value of assets and liabilities as reported on the balance sheet, reflecting original cost adjusted for depreciation, amortization, and impairments.