There Are Those That Believe That the Analysis of Financial

question 19

Multiple Choice

There are those that believe that the analysis of financial statements has limitations. Which of the statements below would qualify as a limitation of financial statement analysis?

• A) Ratio analysis requires the analyst to evaluate a firm's performance over too many years to be of any value.
• B) Proper ratio analysis requires the analyst to rely upon audited financial statements, which can be easily manipulated.
• C) Thorough ratio analysis requires the analyst to refer to benchmarking, which is very easy to misinterpret.
• D) Ratio analysis requires the analyst to utilize accounting data that is based on historical costs instead of current market values.

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Definitions:

Lawful Purpose

A lawful purpose is an action, contract, or transaction that is not in violation of any legal statutes or regulations.

Quantum Meruit

Quantum meruit is a legal principle allowing a party to recover the reasonable value of services provided, even in the absence of a formal contract.

Promissory Estoppel

A legal doctrine preventing a person from going back on a promise, even if it was made without formal consideration, when others have relied on that promise to their detriment.

Quasi Contracts

Contracts imposed by courts to avoid unjust enrichment or unfair benefit, despite there being no formal agreement between the parties.