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Which of the followingreduce the usefulnessof ratio analysis when comparing entities that operate in the same industry?
Select ALL that apply.
Suggested Answer: A, B, D, E
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31 comments · newest first
DA
Daron
11 months ago
Surprised that F is even listed, it’s not a drawback!
AR
Arlette
11 months ago
Totally agree with E, historical info can skew results.
AN
Antonio
11 months ago
Wait, how does D even make sense?
SE
Serita
12 months ago
I think C is also a big factor!
RA
Rachael
12 months ago
A and B definitely affect comparisons.
BU
Buck
1 year ago
I recall that historical information can limit the relevance of ratios, so E seems like it could be a valid choice as well.
FL
Flo
1 year ago
I practiced a similar question where unusual items affected ratios. I think C might reduce usefulness since those items can distort the true financial picture.
SA
Sanjuana
1 year ago
I'm not entirely sure, but I feel like the revenue aggregation from different sources could complicate things too. Maybe A is relevant?
EU
Eun
1 year ago
I remember discussing how different accounting estimates, like depreciation, can really skew comparisons between companies. So, I think B is definitely a factor.
BO
Bobbye
1 year ago
I feel pretty confident about this. The key is to recognize that anything that creates inconsistencies or lack of comparability between the companies' financial information will reduce the usefulness of ratio analysis.
LU
Lucille
1 year ago
Okay, I think I've got a handle on this. The key is to identify which factors make it difficult to directly compare ratios across companies, even if they're in the same industry.
DO
Dorothy
1 year ago
Hmm, I'm a bit unsure about this one. I'll need to think through how each of these factors could impact the comparability of ratios between entities in the same industry.
TA
Tasia
1 year ago
This question seems straightforward, but I'll need to carefully consider each option to determine which ones reduce the usefulness of ratio analysis.
CH
Cherrie
1 year ago
Ah, this is a tricky one. I'll need to really focus on understanding how each of these elements could introduce differences in the ratios, making them less useful for comparison.
CA
Carolann
2 years ago
I'm starting to think the person who wrote this question has a vendetta against ratio analysis. Where's the love?
RE
Ressie
2 years ago
This question is giving me a headache. I'd rather be analyzing financial ratios than taking this exam.
JE
Jesus
2 years ago
E) Ratio calculations being based on historical information.
ME
Melvin
2 years ago
B) Accounting estimates in respect of depreciation being different between entities.
LO
Lorrine
2 years ago
A) The revenue figure being aggregated from many different activities and sources.
CH
Chaya
2 years ago
F? Really? Ratios being quick and easy to calculate is a disadvantage? What kind of question is this?
LE
Lenna
2 years ago
D and E are also important factors. Revaluing assets and using historical data can really skew the ratios.
TY
Tyisha
2 years ago
C) The effect of a material and unusual item being disclosed separately in the notes.
TI
Titus
2 years ago
B) Accounting estimates in respect of depreciation being different between entities.
BE
Benedict
2 years ago
A) The revenue figure being aggregated from many different activities and sources.
SH
Shantay
2 years ago
But what about option C? I think disclosing material and unusual items separately can also impact the comparison.
BE
Bettyann
2 years ago
A and B for sure. How can you compare entities when they have different accounting practices? That's just ridiculous.
CA
Catalina
2 years ago
A and B for sure. How can you compare entities when they have different accounting practices?
JA
Jackie
2 years ago
B) Accounting estimates in respect of depreciation being different between entities.
EL
Eloisa
2 years ago
A) The revenue figure being aggregated from many different activities and sources.
SL
Slyvia
2 years ago
I agree with Donte. Different accounting estimates and revaluing assets can definitely skew the ratios.
DO
Donte
2 years ago
I think options A, B, and D reduce the usefulness of ratio analysis.