One of the limitations of the analysis of financial statements using financial ratios is that their interpretation may vary with changes in the economy.

Select one:

to. True

b. False

Expert Solution

Option (a) is correct.

Above statement is True.

Interpretation of ratios changes with changes in the economy.

E.g. A zero debt company (D/E = 0) may seem excellent investment in times of recession. However, in times of economic boom, a zero debt company may be considered as improper use of capital structure and company which is missing growth opportunities due to inadequate financial leverage.

jeff jeffy answered 3 years ago

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