One problem with ratio analysis is that it relies upon:

A) the accuracy of the investor calculating them
B) the accuracy of financial reports
C) the competence of financial brokerage services
D) all of these choices

Question

One problem with ratio analysis is that it relies upon:

A) the accuracy of the investor calculating them
B) the accuracy of financial reports
C) the competence of financial brokerage services
D) all of these choices

Quizplus · Accepted Answer

Ratios are constructed from financial statements,so the accuracy of ratios relies upon the accuracy of the financial statements.Further,as firms are allowed a diversity of accounting methods,changes in accounting methods over time and different accounting methods between companies mean that financial ratios are not necessarily comparable across either time or firms.Hence,it is important to check for the consistency of accounting treatments,especially for large items.

One Problem with Ratio Analysis Is That It Relies Upon