Which of the Following Statements About Ratio Analysis Is Incorrect

question 77

Multiple Choice

Which of the following statements about ratio analysis is incorrect?

• A)Classifying a large, well-diversified firm into a single industry often is difficult because many of the firm's divisions are involved with different products from different industries.
• B)As a rule of thumb, it is safe to conclude that any firm with a current ratio greater than 1.0 should be able to meet its current obligations, that is, pay bills that come due in the current period.[Current ratio = (Current assets) / (Current liabilities)]
• C)Sometimes firms attempt to use "window dressing" techniques to make their financial statements look better than they actually are in the current period.
• D)Computing the values of the ratios is fairly simple; the toughest and most important part of ratio analysis is interpretation of the values derived from the computations.
• E)General conclusions about a firm should not be made by examining one or a few ratios, ratio analysis should be comprehensive.

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