Which of the Following Are Limitations of Financial Analysis

question 24

Multiple Choice

Which of the following are limitations of financial analysis?
I The past is an imperfect guide to the future.
II Effects of inflation are not considered.
III Changes in accounting policies are not highlighted.
IV Use of different accounting methods across entities makes comparability difficult.

• A) I, III and IV only
• B) II, III and IV only
• C) I and III only
• D) I, II, III and IV

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Definitions:

Instrument

A formal legal document that formally records a legally enforceable act, agreement, or right.

Maker

One who promises to pay a certain sum to the holder of a promissory note or certificate of deposit (CD).

Drawer

In banking and finance, the person who writes or issues a cheque, telling the bank to pay the specified amount from their account.

Promissory Note

A written promise made by one person (the maker) to pay a fixed sum of money to another person (the payee or a subsequent holder) on demand or on a specified date.