Which of the following statements is most correct?
A) Many large firms operate different divisions in different industries, and this makes it hard to develop a meaningful set of industry benchmarks for these types of firms.
B) Financial ratios should be interpreted with caution because there exist seasonal and accounting differences that can reduce their comparability.
C) Financial ratios should be interpreted with caution because it may be difficult to say with certainty what is a "good" value. For example, in the case of the current ratio, a "good" value is neither high nor low.
D) Ratio analysis facilitates comparisons by standardizing numbers.
E) All of the statements above are correct.

Question

Quizplus · Accepted Answer

All of the statements above are correct.

A) It is true that it can be difficult to develop industry benchmarks for firms operating in multiple industries.
B) It is true that financial ratios should be interpreted with caution due to seasonal and accounting differences that can affect comparability.
C) It is true that financial ratios should be interpreted with caution because there is no one "good" value for each ratio, and it may vary depending on the industry and company in question.
D) It is true that ratio analysis standardizes numbers and allows for easier comparisons between companies.

Which of the Following Statements Is Most Correct