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Ratio Analysis doesn't incorporate the impact of Accounting policies adopted by the business in recognizing Income and Expenses.
The resultant comparison between the companies primarily based on Ratio evaluation could be biased and will no longer exhibit the actual comparison among the companies.
A company's choice in accounting regulations will indicate whether management is aggressive or conservative in reporting its earnings. Accounting guidelines still want to adhere to typically accepted accounting principles (GAAP). Accounting ratios, an vital sub-set of financial ratios, are a collection of metrics used to measure the efficiency and profitability of a organization primarily based on its monetary reviews. They offer a way of expressing the connection between one accounting information point to another and are the premise of ratio analysis. Ratio analysis is a method to understand the liquidity function, efficiency of operations, profitability role, and solvency of a business enterprise. It's far a quantitative approach that makes use of an enterprise's monetary statements, along with the profits statement and the balance sheet.
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The purpose of financial accounting is to provide information that helps with the assessment of a firm's financial history and current performance. Financial accounting includes income statements, balance sheets, and statements of cash flows.
Banks and credit statements
Answer: The economic life of a business can be divided into artificial time periods.
Explanation: As per the principal of continuity the existence of a company is perpetual thus to report the performance of the company to the stakeholders the existence of such company is divided into smaller periods and this method is termed as periodicity assumption.