Discuss the Limitations of Financial Ratio Analysis

question 117

Essay

Discuss the limitations of financial ratio analysis.

---

Definitions:

Factory Overhead

includes all the indirect costs associated with manufacturing, such as utilities, maintenance, and salaries of indirect labor.

Direct Labor

The labor costs directly associated with the manufacturing of a product, including wages of workers physically involved in production.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time.

Direct Materials

The raw materials that are directly traceable to the manufacturing of a product.