What you consider to be major limitations of ratio analysis

Reference no: EM13907571

The details given below are a summary of the balance sheets of four companies engaged in different industries.

	A %	B %	c %	D %
Land and buildings	10	2	57	5
Other fixed assets	17		13	73
Stocks and work-in-progress	44		16	1
Trade debtors	6	77	1	13
Other debtors	11		2	5
Cash and investments	12	20	11	3
	100	100	100	100
Capital and reserves	37	5	55	50
Creditors: over one year	12	5	6	25

Creditors: under one year

Trade	32	85	24	6
Other	16	5	15	11
Bank overdraft	3			8
Total capital employed	100	100	100	100

The activities of the four companies are as follows:

1 Operator of a chain of retail supermarkets

2 Lorry transport operator

3 Commercial bank with a network of branches

4 Contractor in the civil engineering industry

You are required to:

(a) State which of the above activities relate to which set of balance sheet details, giving a brief summary of your reasoning in each case.

(b) State what you consider to be the major limitations of ratio analysis as a means of interpreting accounting information.

Reference no: EM13907571

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