The correct answer is: A. Ratios are not predictive.
Financial ratios are a tool that can be used to analyze a company’s financial performance. However, they are not a perfect tool, and they have some limitations. One of the biggest limitations of financial ratios is that they are not predictive. They can tell you how a company has performed in the past, but they cannot tell you how it will perform in the future.
There are a number of reasons why financial ratios are not predictive. One reason is that they are based on historical data. This data may not be representative of the company’s current or future performance. Another reason is that financial ratios are only one piece of the puzzle. They do not take into account all of the factors that can affect a company’s performance, such as its industry, its management team, and its competitive landscape.
Despite their limitations, financial ratios can be a useful tool for analyzing a company’s financial performance. They can help you identify areas where the company is doing well and areas where it needs to improve. However, it is important to remember that financial ratios are just one tool, and you should not rely on them exclusively when making investment decisions.
Here is a brief explanation of each option:
- A. Ratios are not predictive. This is the correct answer. Financial ratios are based on historical data, which may not be representative of the company’s current or future performance. They also do not take into account all of the factors that can affect a company’s performance.
- B. Ratios indicate weakness only. This is not correct. Financial ratios can be used to identify both strengths and weaknesses in a company’s financial performance.
- C. Ratios can be used only by themselves. This is not correct. Financial ratios should be used in conjunction with other tools, such as a company’s financial statements, to get a complete picture of its financial performance.
- D. Ratios are screening devices. This is not correct. Financial ratios can be used to screen companies for investment, but they should not be the only factor considered.