Reading 35: Financial Analysis TechniquesLOS b习题精选 2010, limitation, following, likely

honeycfa

LOS b: Describe the limitations of ratio analysis.

Which of the following reasons is least likely a valid limitation of ratio analysis?

A) Calculation of ratios involves a large degree of subjectivity.

B) It is difficult to find comparable industry ratios.

C) Determining the target or comparison value for a ratio is difficult.

---

There is not a great deal of subjectivity involved in calculating ratios. The mechanical formulas for the calculations are fairly standard and objective for the activity, liquidity, solvency, and profitability ratios, for instance. On the other hand, determining the target or comparison value for a ratio is difficult as it requires some range of acceptable values and that introduces an element of subjectivity. Conclusions cannot be made from viewing one set of ratios as all ratios must be viewed relative to one another in order to make meaningful conclusions. It can be difficult to find comparable industry ratios, especially when analyzing companies that operate in multiple industries.

 

zaestau

c

scofield1985

d