Which of the following statements concerning financial ratios is incorrect?
A)Accounting principles and methods used by a company will not affect financial ratios.
B)The informational value of a ratio in isolation is limited.
C)A ratio is one number expressed as a percentage or fraction of another number.
D)Calculation of financial ratios is not sufficient for a complete financial analysis of a company.

Question

Quizplus · Accepted Answer

This statement is incorrect as the accounting principles and methods used by a company can affect financial ratios. For example, the LIFO and FIFO inventory valuation methods can result in different values for inventory turnover ratio. Therefore, it is important to understand the accounting methods used by a company when interpreting financial ratios.

Which of the Following Statements Concerning Financial Ratios Is Incorrect