Which of the following is true of the application of ratio analysis?
A) These are as reliable as the source data.
B) Analysts should use simple rules of thumb when applying these.
C) These represent causes, not effects.
D) Accounting estimates in the data do not impact ratios.

Question

Quizplus · Accepted Answer

The accuracy and reliability of ratios depend on the accuracy and reliability of the source data used to calculate them. Therefore, option A is the correct statement. Option B is incorrect as simple rules of thumb may not always apply to complex financial situations. Option C is incorrect as ratios typically represent effects rather than causes. Option D is incorrect as accounting estimates such as depreciation, valuation of inventory, etc. have a direct impact on ratios.

Which of the Following Is True of the Application of Ratio