Question

13. Ratio analysis A company reports accounting data in its financial statements. This data is used for financial analyses that provide insights into a company's strengths, weaknesses, performance in specific areas, and trends in performance. These analyses are often used to compare a company's performance to that of its competitors, or to its past or expected future performance. Such insight helps managers and analysts improve their decision making. Consider the following scenario: You work as an analyst at a credit-rating agency, and you are comparing firms in the construction and engineering sector. One company in the portfolio of companies you are analyzing is a Chinese firm. This firm stands out in the ratio analysis, because the company's financial ratios are substantially lower than identical financial ratios of the other firms in the sector. You do not dissect the results of the ratio analysis and categorize report this firm as an under-performing company.

Answer 1

Solution : From the given data, we have. Although the ratios are lower for the Chinese, fuither analysis is requined for correct and propor analysis. Hence Second Option ?s applicable here The analysis likely includes incorrect and misleading Conclusions Statments : 0 True © Eakse as Market based ratio Compare price of stock - of Company to income generation of the firm. ③ True. ② False as debt ratio shall measure ability to pay off. long tom debt. © True The weaknesses of ratio analysis are : window dressing as fingncial statements Con played with markt data is not considered as ratios have to be com- pared with that of the Market Seasonal factor distorting desta in case of Seasonal production. . *. please rate *