Limitations of Ratio Analysis

Limitations of Ratio Analysis - 4 Published peer group or...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Limitations of Ratio Analysis 1. Accounting practices between firms vary and can lead to differences in computed ratios a. Inventory methods b. Depreciation methods 2. Accounting data easy to manipulate 3. It is sometimes difficult to identify the industry category (NAICS) particularly when a company engages in multiple lines of business
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 4. Published peer group or industry averages are approximations and provide the user with general guidelines a. An industry average may not be a desirable target ratio or norm 5. Many industries have seasonal sales and their corresponding ratios vary with the time of the year 1...
View Full Document

This note was uploaded on 08/22/2009 for the course FIN 3310 taught by Professor Potts during the Spring '08 term at Baylor.

Ask a homework question - tutors are online