Financial Analysis Limitations

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to Lesson

Podcast

Play an AI-generated podcast conversation about this lesson
Download our mobile app to listen on the go
Get App

Questions and Answers

How can management attempt to improve the current ratio near the end of the year?

  • Using cash to pay off short-term debt (correct)
  • Increasing long-term debt
  • Investing excess cash in long-term assets
  • Delaying payments to suppliers

Why might account balances like receivables, payables, and inventories not be representative at year-end?

  • Due to entering into long-term contracts
  • Financial year-end coinciding with a low point in activity (correct)
  • Excessive use of cash for investments
  • Because of high activity in the operating cycle

Why do many analysts exclude one-off or non-recurring items from ratios?

  • To inflate profitability figures
  • To reduce net income
  • To improve comparability between entities
  • To determine more accurate trends and assess business efficiency (correct)

What factor may hinder meaningful comparisons between competing entities?

<p>Different diversification of product lines (A)</p> Signup and view all the answers

Why should analysis and interpretation take into consideration modifications, supplementations, and qualifications expressed in accompanying documents?

<p>To fully understand the financial position of the entity (D)</p> Signup and view all the answers

Flashcards are hidden until you start studying

More Like This

Use Quizgecko on...
Browser
Browser