One Problem with Ratio Analysis Is That Relationships Can Be

question 96

True/False

One problem with ratio analysis is that relationships can be manipulated.For example, we know that if our current ratio is less than 1.0, then using some of our cash to pay off some of our current liabilities would cause the current ratio to increase and thus make the firm look stronger.

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Definitions:

Rationing

A system of allocating scarce goods and services using criteria other than price, often used in times of shortage to ensure equitable distribution.

Allocation

The process of distributing resources or assigning tasks among people or groups in a planned manner.

Scarce Supply

A situation where the availability of a product or service is limited relative to the demand for it.

Consumer Choices

The selection of goods or services made from available alternatives by consumers based on their preferences and budget.