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

Question

Quizplus · Accepted Answer

Ratio analysis can be limited by window-dressing techniques, which can manipulate the ratios to give a false impression of the company's financial health. The other options in the question are not accurate limitations of ratio analysis.

A Limitation of Ratio Analysis Is That