Benefits and two possible limitations of ratio analysis.

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Question 1

Identify and explain two possible benefits and two possible limitations of ratio analysis. (Max. 120 words)

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Question 2

Describe how pressure exerted on senior management by shareholders and other parties may impact the accuracy of financial statements. (Max. 50 words)

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Question 3

Suggest one action management can take to mitigate the risk of fraud occurring when financial statements are being compiled. (Max. 50 words)

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Question 4

View the most recent annual report for M&S. This can be found by visiting their website.

Do you think M&S is performing well as a business? Provide three examples or arguments from the annual report to justify your answer.

 

Sample Solution

Benefits and two possible limitations of ratio analysis

Ratio analysis refers to the analysis and interpretation of the figures appearing in the financial statements (i.e., Profit and Loss Account, Balance Sheet and Fund Flow statement etc.). It is a process of comparison of one figure against another. It enables the users like shareholders, investors, creditors, government, and analysis to get better understanding. The benefits of ratio analysis include: forecasting and planning – this trend analysis with the help of ratios may be useful for forecasting and planning future business activities; budgeting – budget is an estimate of future activities on the basis of past experience. Accounting ratios help to estimate budgeted figures. But it has some limitations including: limitations of financial statements – ratios are calculated from the information recorded in the financial statement. But financial statements suffer from a number of limitations and may, therefore, affect the quality of ratio analysis.

pouch can only hold limited food, the patient could experience vomiting from eating more than the pouch can hold. Re-operation may be necessary if an infection develops within the port area (in the abdomen) and can also affect the band. Another problem that could occur is leakage, the gastric balloon is made of a very fragile material and if too much fluid is injected into the band, leakage could occur – this can also happen through the connecting tube. One of the main disadvantages that can occur from rapid weight loss from using the gastric band is excessive skin, this can become a problem as rashes or other skin condition could develop under the fold, and is typically aesthetically unpleasing to the patient. Although uncommon, the patient could also acquire nutrient deficiency as they are reducing the amount of food that they are consuming, resulting in an imbalanced diet and need for multivitamin supplements.
Although the gastric banding should help with the patients “feeling of fullness” it does not change their mind set towards food and what foods they consume, and they could start developing dysfunctional eating patterns (unbalanced diet). This could mean, as mentioned before, they develop nutritional deficiencies, and worst case scenario, the gastric band surgery could become futile and could see them return to their previous state of health or weight. Many people believe this will help them digest food a lot quicker, but the surgery does not alter the person’s metabolism it only restricts the capacity of the stomach. This means that patients are not experiencing a shift in their food preferences, “away from sugary or fatty foods”.Part F: Should the cost of gastric banding be covered by Medicare?

There has been a massive debate throughout the years over whether or not Gastric Band surgery should be covered by Medicare. Dr Leibman, avid stakeholder in the current debate, believes that the weight l

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