CFA Practice Question

There are 534 practice questions for this study session.

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
lanhuongnguyen remember "except"
nmech1984 E.X.C.E.P.T. ahhh
You need to log in first to add your comment.