The Use of Estimates, Cost, Alternative Accounting Methods, the Presence

question 12

Essay

The use of estimates, cost, alternative accounting methods, the presence of atypical data, and diversification of firms are all factors that may limit the usefulness of financial statement analysis. Identify a ratio and explain how one or more of the limiting factors can affect the usefulness of that ratio.

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Definitions:

Arbitration

Settlement of a labor–management dispute by a third party whose solution is legally binding and enforceable.

Labor Contract

The formal, written document that spells out the relationship between the union and management for a specified period of time—usually two or three years.