Which one of the following statements is correct concerning ratio analysis?
A)A single ratio is often computed differently by different individuals.
B)No ratio can address the problem of size differences among firms.
C)Only a very limited number of ratios can be used for analytical purposes.
D)Every ratio is an income statement entry divided by a balance sheet item.
E)Ratios cannot be used for comparison purposes over periods of time.

Question

Quizplus · Accepted Answer

Ratios can be calculated in different ways by different individuals, depending on how they define and measure the relevant variables. For example, one person may include all current assets in the numerator of the current ratio, while another may only include more liquid assets such as cash and marketable securities. It is important for analysts to be transparent about their methods and assumptions so that the results can be properly interpreted and compared.

Which One of the Following Statements Is Correct Concerning Ratio