Which of the Following Is a Potential Problem of Utilizing

question 65

Multiple Choice

Which of the following is a potential problem of utilizing ratio analysis?

• A) trends and industry averages are historical in nature.
• B) financial data may be distorted due to price-level changes.
• C) firms within an industry may not use similar accounting methods.
• D) all of the other answers are correct

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Definitions:

Construct Validity

The degree to which a measurement device accurately measures the theoretical construct it is designed to measure.

Reliability

The consistency and stability of measurements or assessments over time.

Validity

The degree to which a tool, test, or measure accurately represents or measures what it claims to.

Variability

The extent to which data points in a set differ from each other and from the average, indicating the spread or dispersion.