Which of these is a limitation of financial ratio analysis? Select one: a.Suitable yardsticks for comparisons are not always available. b.Ratios have a restricted vision as they only assess the past. c.Year-end data is not necessarily typical of the position during the year. d.All of the above
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Which of these is a limitation of financial ratio analysis?
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- Financial analysts are aware of the many limitations of ratio analysis as a technique of financial statement analysis. Describe the advantages and disadvantages of ratio analysis. Explain ways that ratios may be misleading to an analyst. For example, ratios are retrospective and do not directly incorporate forecasts of future performance.In isolation, which of the following is TRUE about a financial ratio? Select one: a. Useful only for past performance b. Useful piece of information c. Useful only for future predictions d. Useless piece of informationWhich of the following statements are false? Select all that apply a. Liquidity ratios are used to measure the speed with which various accounts are converted into sales. b. When ratios of different years are being compared, inflation should be taken into consideration c. Return on total assets (ROA) is sometimes called return on investment d. Generally, inventory is concerned with the most liquid asset that a firm possesses. e. A P/E ratio of 20 indicates that investors are willing to pay $20 for each $1 of earnings.
- Please see the attached graph for questions below. What is the difference between the two companies on this ratio? What is a plausible explanation as to why they would differ? Is one company clearly different than the other? Are there economic or end-market influences that explain why the ratios differ? What might they be? Over time, is each company’s overall financial performance improving, declining, or is something strange going on? Do you think evaluating financial statements is a good idea? What do you regard as some of the shortcomings of financial ratio analysis?Which of the following is not one of the typical uses of financial ratios? a. Comparisons to a company’s historic values b. Comparison to benchmarksc. Comparison to competitors’ values d. Comparison to zero with positive values indicating desirable ratios and negative values indicating undesirable ratios.Explain at least one major weakness of using financial ratios to evaluate a firm's performance for a given period?
- Ratio analysis is the most important tool of financial analysis. Ratios like statistics have an a of precision and finality about them which at times may be misleading. That's why it becomes necessary to know some of the limitations from which they suffer. Discuss.Contrast the modern construct for FISIM with a measure that sub- tracts deposits from the financial sector’s lending to measure value added in the financial sector, i.e. what we called gross profits. How will these two measures differ in terms of size and sensitivity to risk? Can you give differing views of a world without finance for each to be the proper measure of value added? [Note these are two different statistics which are designed to measure the same number so if they differ at least one of is incorrect.]Why is the acid test ratio a more rigorous test of short-term solvency than the current ratio? A. The quick ratio eliminates prepaid expenses for the denominator.B. The quick ratio eliminates prepaid expenses for the numerator.C. The quick ratio eliminates inventories from the numerator.D. The quick ratio considers only cash and marketable investments as current assets.E. The quick ratio eliminates revenue from the numerator.
- Which of the following statements is CORRECT? Perhaps the most important step when developing forecasted financial statements is to determine the breakdown of common equity between common stock and retained earnings. The AFN equation produces more accurate forecasts than the forecasted financial statement method, especially if fixed assets are lumpy and economies of scale exist. The first, and perhaps the most critical, step in forecasting financial requirements is to forecast future sales. Forecasted financial statements, as discussed in the text, are used primarily as a part of the managerial compensation program, where management's historical performance is evaluated. The capital intensity ratio gives us an idea of the physical condition of the firm's fixed assetsWhich of the following statements regarding the current ratio is true? a.The current ratio is more useful than working capital in making comparisons across companies. b.The current ratio is not useful in making comparisons with industry averages. c.Working capital is more useful than the current ratio in making comparisons across companies. d.All of these statements are true.For a project I have due, I need help determining which of these ratios is best to determine financial performance. When doing my research, I am having trouble undertanding the difference between the 'Financial Leverage' ratio and Debt equity ratio. Can you explain the difference to me and tell me what these mean