When using financial ratios to analyze a company's ability to maximize shareholders' wealth, all of the following cautions should be considered EXCEPT ____.
A) financial ratios are flags indicating potential areas of strength or weakness
B) a financial ratio must be dissected to discover its true meaning
C) a financial ratio must be compared to some standard
D) although there may be accounting differences between companies, these differences do not impact financial ratios

Question

Quizplus · Accepted Answer

This statement is incorrect. Accounting differences can impact financial ratios, and it is important to be aware of the accounting methods used when comparing ratios between companies. The other cautions mentioned are important to consider when analyzing financial ratios.

When Using Financial Ratios to Analyze a Company's Ability to Maximize