Which of the following is a limitation related to the usage of ratios when reviewing a firm's performance?
A) Ratios reveal differences in policy and performance between years.
B) Ratios can be used to compare firms that are in the same industry if one firm's sales are higher than another firm's.
C) Financial ratios are designed for the use of creditors, not for managers.
D) Different accounting practices between firms can distort comparisons.

Question

Quizplus · Accepted Answer

Different accounting practices between firms can distort comparisons. For example, one company may use the LIFO inventory method while another company may use the FIFO inventory method. These different methods can lead to different inventory values, which can impact the calculation of the inventory turnover ratio. Therefore, it is important to take into account any differences in accounting practices when interpreting ratios.

Which of the Following Is a Limitation Related to the Usage