Question

Which of the following statements is most correct? Many large firms operate different divisions in different industries, and this makes it hard to develop a meaningful set of industry benchmarks for these types of firms. Financial ratios should be interpreted with caution because there exist seasonal and accounting differences that can reduce their comparability. Financial ratios should be interpreted with caution because it may be difficult to say with certainty what is a "good" value is neither high nor low. Ratio analysis facilitates comparisons by standardizing numbers. All of the statements above are correct.

Answer 1

Answer:

All of the statements above are correct.

Explanation:

All of the following statements listed below are correct and true about business management;

1. Many large firms operate different divisions in different industries, and this makes it hard to develop a meaningful set of industry benchmarks for these types of firms.

Hence, industry average or benchmarks are more applicable to a small and medium enterprise than it's to large enterprises. The industry benchmark is a process that is focused on comparing an industry with other successful industries.

2. Financial ratios should be interpreted with caution because there exist seasonal and accounting differences that can reduce their comparability.

Hence, it is important to interpret financial ratios with care and reasonable logic as factors such as inflation and depreciation.

3. Financial ratios should be interpreted with caution because it may be difficult to say with certainty what is a "good" value is neither high nor low.

4. Ratio analysis facilitates comparisons by standardizing numbers.

Ratio analysis can be defined as the analysis and comparison  of various line items in the financial statements of a business such as the income statement or balance sheet, in order to gain insight into its operational efficiency, profitability and liquidity. Types of ratio analysis are liquidity, efficiency, solvency, market value, and profitability ratio.