- CFA Exams
- CFA Level I Exam
- Study Session 7. Financial Reporting and Analysis (2)
- Reading 24. Financial Analysis Techniques
- Subject 1. Analysis Tools and Techniques
CFA Practice Question
All of the following would be regarded as limitations in using ratio analysis, except ______
A. it is sometimes misleading to compare firm ratios to an industry average, since it is very common for firms to be operating in a multitude of industries.
B. even if a firm maintains consistent accounting policies, times series financial ratio analysis for a firm may be misleading if the state of the economy has changed over that period.
C. sometimes, different sets of financial ratios will give conflicting signals about the firm's prospects.
Explanation: If a firm maintains consistent accounting policies, that eliminates the main cause of inconsistency (caused by the availability of many accounting methods). Therefore, conducting a time-series financial ratio analysis for a firm may uncover some very unequivocal microeconomic relationships, even if the state of the economy has changed over that period.
User Contributed Comments 2
User | Comment |
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lanhuongnguyen | remember "except" |
nmech1984 | E.X.C.E.P.T. ahhh |