Which of These Are Limitations of Financial Analysis

question 27

Multiple Choice

Which of these are limitations of financial analysis?
I. The past is an imperfect guide to the future
II. Historical cost financial reports are not adjusted for inflation
III. Non-quantitative factors are not considered
IV. Ratio results often contain errors in calculations
V Comparisons may not be valid

• A) I, II, III, V
• B) I, II, IV, V
• C) II, III, IV, V
• D) I, III, IV, V

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Definitions:

Cost Variances

Cost variances refer to the difference between the expected (budgeted) costs and the actual costs incurred during a specific period.

Management

The process of planning, organizing, leading, and controlling resources to achieve specific goals.

Exception

A deviation from the norm or a case that does not follow the general rule.

Standard Costs

Predetermined costs assigned to goods and services, used as benchmarks to measure performance by comparing them with actual costs.