What Are Some of the Pitfalls Involved in Using Financial

question 27

Essay

What are some of the pitfalls involved in using financial ratios?
B.Finally, an analyst should understand how a given ratio has changed over time and the reasons for that change.A ratio for a given period may be acceptable, but ignoring changes over time can lead an analyst to overlook important developments.

---

Definitions:

Equipment Depreciation

Allocation of the cost of tangible assets over their useful lives, reflecting the decrease in the value of equipment over time.

Performance Budget Report

A document that compares actual financial performance to budgeted amounts, often highlighting efficiencies or areas that need improvement.

Investment Centers

Sections of a company treated as separate business units, responsible for their profit and investment.

Controllable Margin

The portion of profit or margin that can be directly influenced by management's actions by controlling certain costs or revenues.