Financial Analysis Limitations
5 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to Lesson

Podcast

Play an AI-generated podcast conversation about this lesson

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

More Like This

Use Quizgecko on...
Browser
Browser