Discussion question, please discuss ratio analysis base on the statement below.<\/p>
There are some inherent problems and limitations to ratio analysis that necessitate care and judgment.<\/p>
<\/p>
1.Ratios are often not useful for analyzing the operations of large firms that operate in many different industries because comparative ratios are not meaningful.<\/p>
2.The use of industry averages may not provide a very challenging target for high-level performance.<\/p>
3.Inflation affects depreciation charges, inventory costs, and therefore the value of both balance sheet items and net income. For this reason, the analysis of a firm over time, or a comparative analysis of firms of different ages, can be misleading.<\/p>
4.Ratios may be distorted by seasonal factors, or manipulated by management to give the impression of a sound financial condition (window dressing techniques).<\/p>
5.Different operating policies and accounting practices, such as the decision to lease rather than to buy equipment, can distort comparisons.<\/p>
6.Many ratios can be interpreted in different ways, and whether a particular ratio is good or bad should be based upon a complete financial analysis rather than the level of a single ratio at a single point in time.<\/p>", "transcribed_text": "", "related_book": { "title": "Intermediate Accounting", "isbn": "470964731, 978-0470964736, 978-0470161012", "edition": "9th Canadian Edition, Volume 2", "authors": "Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield.", "cover_image": "https:\/\/dsd5zvtm8ll6.cloudfront.net\/si.question.images\/book_images\/516.jpg", "uri": "\/textbooks\/intermediate-accounting-9th-canadian-edition-volume-2-516", "see_more_uri": "" }, "free_related_book": { "isbn": "1619608324", "uri": "\/textbooks\/diesel-technology-fundamentals-service-repair-8th-edition-9781619608320-9781685842536", "name": "Diesel Technology Fundamentals Service Repair", "edition": "8th\u00a0Edition" }, "question_posted": "2024-06-29 01:24:12", "see_more_questions_link": "\/study-help\/questions\/business-corporate-finance-2020-July-01", "step_by_step_answer": "The Answer is in the image, click to view ...", "students_also_viewed": [ { "url": "\/suppose-a-point-charge-q-is-constrained-to-move-along", "description": "Suppose a point charge q is constrained to move along the x axis. 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