Practice - Limitations of Ratio Analysis
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Practice Questions
Test your understanding with targeted questions
What does historical data dependence mean in ratio analysis?
💡 Hint: Think about how past figures may or may not represent current reality.
What is window dressing?
💡 Hint: Consider why a company might want to look more profitable.
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Interactive Quizzes
Quick quizzes to reinforce your learning
What is one major limitation of ratio analysis?
💡 Hint: Think about how useful past data is in predicting the future.
True or False: Window dressing is a legitimate way to improve financial statements.
💡 Hint: Consider if altering facts to look better is acceptable.
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Challenge Problems
Push your limits with advanced challenges
You are analyzing a tech startup that has shown massive growth in revenue in recent years, but their net income has been unstable. Discuss how historical data dependence might affect your analysis.
💡 Hint: What factors might affect their stability in the future?
Consider two companies with identical liquidity ratios but operating in different industries. Discuss how differing accounting policies might impact your analysis.
💡 Hint: What determines 'normal' for each industry?
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