Which of the following is a limitation related to the usage of ratios when reviewing a firm's performance?
A)Ratios reveal differences in policy and performance between years.
B)Ratios can be used to compare firms that are in the same industry if one firm's sales are higher than another firm.
C)Financial ratios are designed for the use of creditors,not for managers.
D)Different accounting practices between firms can distort comparisons.

Question

Quizplus · Accepted Answer

Different accounting practices can make it difficult to compare ratios for firms. For example, one firm may use the LIFO method to value inventory while another may use FIFO, which can result in different inventory turnover ratios. It is important to carefully consider the accounting methods used by firms before making comparisons based on ratios.

Which of the Following Is a Limitation Related to the Usage