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A limitation of ratio analysis is that:​

a. statistical procedures are considered to analyze the net effects of a set of ratios.

b. it is useful only for large, multidivisional firms.

c. inflation, which distorts the firm's balance sheet, is considered when calculating ratios.

d. window-dressing techniques will change the ratios of a firm.

e. seasonal factors that distort the firm's balance sheet are taken into account when calculating ratios.

Respuesta :

Answer:

The correct answer is letter "D": window-dressing techniques will change the ratios of a firm.

Explanation:

Ratio analysis is a tool that helps entrepreneurs to find out information about the performance of a company taking as a feed the data provided in the company's financial statements. However, there are limitations of ratio analysis such as the fact that firms make changes over the end of the year so that the ratios modify. This practice is called window-dressing.

Besides, ratio analysis takes into account the monetary aspects of the company only but not qualitative features. Also, ratio analysis ignores the changes in price as a result of inflation since they use historical costs making the ratio inaccurate at the moment of the calculation.

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