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Discuss the Limitations of Ratio Analysis and the Cautions Which

question 145

Essay

Discuss the limitations of ratio analysis and the cautions which must be taken when reviewing a cross-sectional and time-series analysis.


Definitions:

Interest Revenue

Income earned by an entity from lending money or making investments that bear interest.

Reportable Segments

These are components of a business where separate financial information is available and is reviewed regularly by the operating decision maker for the purpose of resource allocation and performance assessment.

Operating Profit

Earnings before interest and taxes (EBIT), an indicator of a company's profitability from its core operations excluding financing costs and taxes.

Segment Assets

These are the specific assets that are attributed to a company's business segment, helping to analyze performance by division.

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