limitations of financial ratios

Question 1

what are the limitations to financial reports

Answer 1

debt repayment, capitalising expenses, notes to financial statements, timing issues, normalised earnings, valuing assets

Question 2

what is the acronym for limitations to financial reports

Answer 2

DRCENTINEA

Question 3

define normalised earnings

Answer 3

normalised earnings refers to the process of removing accounts changes in the economic cycle or to remove one-off or unusual items from the balance sheet to show the true earnings of a company

Question 4

define capitalising expenses

Answer 4

capitalising expenses refers to the process of adding a capital expense on the balance sheet as an asset rather than an expense

Question 5

define valuing assets

Answer 5

valuing assets refers to the process of estimating the market value of assets or liabilities.

Question 6

define timing issues

Answer 6

when analysing a financial report limitations can arise due to timing issues. Where expenses incurred by the business must be recorded on the income statement for the accounting period in which the revenue is earned to which those expenses relate.

Question 7

define debt repayments

Answer 7

refers to either money owed to the business or by the business. financial reports are limited as they do not have the capacity to disclose specific information about debt repayments, like the length.

Question 8

defines notes to financial statement

Answer 8

refers to the process of reporting the details and additional information that are left out the main reporting document.