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Limitations of Ratios Flashcards | StudBud
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Limitations of Ratios
Limitations of Ratios
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Answers
1
Two companies have very different ROCE ratios. What could explain this?
They operate in different countries
Their sales figures are different
They have different year ends
One uses straight-line depreciation while the other uses reducing balance
2
What limitation type is: "The ratios look great but our biggest customer just cancelled their contract"?
Historical data problem
Inflation issue
Standard benchmark issue
Accounting policy difference
3
A beach shop's ratios look amazing in August but terrible in January. This mainly shows that…
August is too busy
Ratios are just a snapshot in time
The shop needs better management
Winter sales are impossible
4
What's the main problem with using ratio standards like "current ratio should be 2:1"?
Standards are outdated
Numbers are too low
Numbers are too high
Different businesses need different levels
5
Which of these are qualitative factors that ratios DON'T show? (Multi-select)
Brand value
Sales revenue
Customer loyalty
Staff morale
