A limitation of ratio analysis is that:
A)it is useful only for large, multidivisional firms.
B)inflation, which distorts a firm's balance sheet, is considered when calculating ratios.
C)seasonal factors, which distort a firm's balance sheet, are taken into account when calculating ratios.
D)firms can employ window-dressing techniques to make their financial statements look better.
E)only statistical procedures are considered while analyzing the net effects of a set of ratios.

Question

Quizplus · Accepted Answer

Firms can manipulate their financial statements by using window-dressing techniques, such as timing of expenses and revenue recognition, to make their financial statements look better. This can lead to the ratios being misleading and not reflecting the true financial health of the company.

A Limitation of Ratio Analysis Is That