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:

Total Welfare

The total economic well-being that a society achieves, including both consumer surplus and producer surplus.

Consumer Surplus

The contrast between what consumers intend to spend on a good or service and the actual amount they part with.

Producer Surplus

The difference between how much producers are willing to accept for a good versus how much they actually receive.

Price Support

Price set by government above free-market level and maintained by governmental purchases of excess supply.