Limitations of ratio analysis can be caused by:
A) purchasing expensive machinery at the end of the financial year.
B) estimations of employee benefits.
C) different depreciation methods adopted by entities in the same industry.
D) all of the above.

Question

Quizplus · Accepted Answer

All of the above options can lead to limitations of ratio analysis as they can affect the accuracy and comparability of financial statements, and therefore the ratios calculated from them. Purchasing expensive machinery at the end of the financial year can affect liquidity and profitability ratios. Estimations of employee benefits can affect profitability ratios and overall financial performance. Different depreciation methods adopted by entities in the same industry can affect asset turnover ratios and overall valuation of the company.

Limitations of Ratio Analysis Can Be Caused By