Which of the following is 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 these.

Question

Quizplus · Accepted Answer

All options listed are potential problems of utilizing ratio analysis. Trends and industry averages are historical in nature which means they are based on past data and may not accurately predict future trends. Financial data may be distorted due to price-level changes which can affect the comparability of financial statements over time. Firms within an industry may not use similar accounting methods which can affect the comparability of financial statements among companies. Thus, all of these are potential problems of utilizing ratio analysis.

Which of the Following Is a Potential Problem of Utilizing