WAEC Accounting 2023 Theory — Question 12

Model answer

1. Accounting ratios deal in quantitative information only, ignoring qualitative factors. 2. Accounting ratios can be easily manipulated. 3. Ratios are computed based on past (historical) data, so they are not a good indicator for future planning. (Other acceptable: the use of different definitions of certain terms makes it difficult to use ratios for decisions; comparing firms operating under different conditions using ratios can be unfair; some firms window-dress their financial statements, resulting in misleading ratios; inflation renders ratios less effective because of frequent price level changes.)