Which of the Following Is/are Limitations of Ratio Analysis

question 3

Multiple Choice

Which of the following is/are limitations of ratio analysis?

• A)use of acquisition cost for assets rather than current replacement cost or net realizable value
• B)latitude firms have in selecting from among various generally accepted accounting principles
• C)changes in many ratios correlate with each other
• D)must recognize conditions that have changed between the periods being compared when comparing the size of a ratio between periods for the same firm
• E)all of the above

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Definitions:

Correlation Coefficients

Statistical measures that quantify the degree to which two variables are related or move together.

Predictive Validity

The extent to which a score on a scale or test predicts future performance on a related task.

Correlate Strongly

To correlate strongly means that two or more variables have a significant association or relationship, where changes in one variable are consistently associated with changes in another.

Predictive Validity

The extent to which a score on a scale or test predicts scores on some criterion measure.