Question : Which of the following statements is true?
Option 1: The ratio analysis involves comparison for a useful interpretation of financial statements.
Option 2: A single ratio in itself does not indicate a favourable or unfavourable position.
Option 3: It should be compared with that of some other firm in the same industry or with that of past ratios of the same firm.
Option 4: All of the above
Correct Answer: All of the above
Solution : Answer = All of the above
Ratio analysis is a method used to analyze a company's financial health by comparing various ratios derived from its financial statements, aiding in understanding liquidity, operational efficiency, and profitability.
One ratio alone may not provide a comprehensive view of a company's financial status; it needs to be analyzed alongside other ratios for a more complete assessment.
To gain meaningful insights, ratios should be compared with industry benchmarks or historical data from the same company to assess performance and identify trends.
Hence, the correct option is 4.
