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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- Comment on the following statements with suitable example: i. The ratio return on assets has net income in the numerator and total assets in the denominator. Explain how each part of the ratio could cause return on assets to fall. ii. Explain how return on assets could decline, given an increase in net profit margin. iii. If quoted market prices are not available, a personal financial statement cannot be prepared. Comment.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 informationIn your opinion, what is the advantage of using comparative statements for financial analysis rather than statements for a single date or period? In your opinion, what are the top two most important ratios when analyzing the financial statements? Explain.
- 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.Most decisions made by management impact the ratios analysts use to evaluate performance. Indicate (by letter) whether each of the actions listed below will immediately increase (I), decrease (D), or have no effect (N) on the ratios shown. Assume each ratio is less than 1.0 before the action is taken. CAn you explain how to solve these not just the answers? 1. Issuance of long-term bonds 2. Issuance of short-term notes 3. Payment of accounts payable 4. Purchase of inventory on account 5. Purchase of inventory for cash 6. Purchase of equipment with a 4-year note 7. Retirement bonds 8. Sale of common stock 9. Write-off of obsolete inventory 10. Purchase of short-term investment for cash 11. Decision to refinance on a long-term basis some currently maturing debtWhich is wrong about the use of financial statement analysis? a. Seasonality factors may contribute to a sort of distortion on the financial ratio’s trends. b. Activity ratios, such as profit margin and return on asset, tells how efficient the company uses its resources and assets c. Horizontal analysis of financial statements is conducted by analyzing inter-period financial statements d. The Liquidity of the company can be determined using acid-test ratio and current ratio
- 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.Which is not a potential problem of utilizing ratio analysis? A. trends and industry averages are historical in nature. B. financial data may be distorted due to price-level changes. C. firms within an industry may not use similar accounting methods. D. all of the above E. answer not givenWhich 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.
- II. PROBLEMS. 1. Indicate whether the meaning and and consequences of the following statistical data / ratios which are considered symptoms of failure. Ratio High Low 1. Cash flow to total debt 2. Market Price 3. Working Capital to total asset 4. Retained earnings to total assets 5. EBIT to total assets 6. Market value of equity Book value or Debt 7. Sales to total assetsWhich of the following statements represent a weakness or limitation of ratio analysis? Check all that apply. Seasonal factors can distort data. Market data is not sufficiently considered. Window dressing might be in effect.Select the incorrect statement regarding the quick ratio: a) The quick ratio is also known as the acid-test ratio. b) The quick ratio is a conservative variation of the current ratio. c) The quick ratio equals quick assets divided by total liabilities. d) The quick ratio ignores some current assets that are less liquid than others.