There are people who believe that the analysis of financial statements has limitations. Which of the statements below would qualify as a limitation of financial statement analysis?
A) Ratio analysis requires the analyst to evaluate a firm's performance over a period of time to be of any value.
B) Proper ratio analysis requires the analyst to rely upon audited financial statements, which can be easily manipulated.
C) Thorough ratio analysis requires the analyst to refer to benchmarking, which is very easy to misinterpret.
D) Ratio analysis requires the analyst to utilize accounting data that is based on historical costs instead of current market values.

Question

Quizplus · Accepted Answer

Ratio analysis is limited because it relies on financial data that is based on historical costs, rather than current market values. This can be problematic because market values may fluctuate dramatically, causing ratios and trends to be misleading.

There Are People Who Believe That the Analysis of Financial