The basic limitations associated with ratio analysis include
A) the lack of comparability among firms in a given industry.
B) the use of estimated items in accounting.
C) the use of historical costs in accounting.
D) All of these answers are correct.

Question

Quizplus · Accepted Answer

All of the given options are basic limitations of ratio analysis. The lack of comparability among firms can arise due to differences in accounting methods used by different companies. The use of estimated items such as depreciation rates can result in variations in financial ratios. Historical costs used in accounting can be a limitation as they may not reflect the current market value of assets and liabilities. Therefore, all of the given options are correct limitations of ratio analysis.

The Basic Limitations Associated with Ratio Analysis Include