Which of the Following Is a Limitation of Ratio Analysis

question 68

Multiple Choice

Which of the following is a limitation of ratio analysis?

• A) Ratios depend on accounting data based on historical costs.
• B) Differences in accounting practices like FIFO versus LIFO make comparison difficult.
• C) Trend analysis could be distorted by financial statements affected by inflation.
• D) All of the above are limitations of ratio analysis.

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Definitions:

Equilibrium Quantity

The quantity of goods or services that is supplied and demanded at the equilibrium price, where market supply and demand balance out.

Demand for Coffee Makers

The desire and ability of consumers to purchase coffee-making machines, influenced by factors such as price, consumer income, and preferences.

Equilibrium Price

The price at which the quantity of a good demanded by consumers equals the quantity supplied by producers, resulting in market balance.

Demand Shift

A change in the quantity of a product or service that consumers are willing and able to buy at all price levels, caused by factors other than the price of the product itself.