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Which of the following limitations in using ratio analysis best describes the following statement: In 2013, the firm acquired a new line of business which has a very different profitability margin. This makes it difficult to compare the firm’s profitability margins from 2011 to 2013?
1) Seasonal
2) Accounting practices
3) Many different divisions
4) Window dressing
I am not sure if “aquire a new business line” would result in new accounting practice or new division. So consider number 2 or 3 as the answer.
Please help. Thanks in advance.
I would choose (3). Accountancy practices could make a difference, but it is really having different types of business that makes it the most hard to compare the years.
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