A Limitation of Ratio Analysis Is That

question 98

Multiple Choice

A limitation of ratio analysis is that:

• A)it is useful only for large, multidivisional firms.
• B)inflation, which distorts a firm's balance sheet, is considered when calculating ratios.
• C)seasonal factors, which distort a firm's balance sheet, are taken into account when calculating ratios.
• D)firms can employ window-dressing techniques to make their financial statements look better.
• E)only statistical procedures are considered while analyzing the net effects of a set of ratios.

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Definitions:

Time-Trend Analysis

A method of forecasting future data points by analyzing the patterns of historical data over time.

Quick Ratio

A liquidity ratio that measures a company's ability to meet its short-term obligations with its most liquid assets.

Peer Group

A set of companies or individuals that share similar characteristics or interests, often used as a benchmark for performance comparison.

Return on Assets

is a financial ratio that measures how profitably a company can utilize its assets to generate earnings.