Which combination of statements is correct about ratio analysis? A. I…

Which combination of statements is correct about ratio analysis?

A. Ignore price level changes

B. Does not enable SWOT analysis

C. Helps in comparative analysis

D. Reflects price level changes

E. Incorporate Non-monetary aspects

Choose the correct answer from the options given below.

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → A and C only

(A) Ignore price level changes – correct. Accounts assume a stable value of money, so ratios do not reflect inflation; this is a limitation of ratio analysis.

(B) Does not enable SWOT analysis – not correct. Ratios explain changes in the business and so enable SWOT analysis.

(C) Helps in comparative analysis – correct. Ratios of several years kept side by side show trends.

(D) Reflects price level changes – not correct; it is the opposite of (A).

(E) Incorporate Non-monetary aspects – not correct. Ratios reflect only monetary aspects and ignore qualitative factors.

NCERT (2026-27 edition):
Ignores Price-level Changes – “… The financial accounting is based on stable money measurement principle. It implicitly assumes that price level changes are either non-existent or minimal.”

NCERT (2026-27 edition):
Enables SWOT analysis – “… Ratios help a great deal in explaining the changes occurring in the business. The information of change helps the management a great deal in understanding the current threats and opportunities and allows business to do its own SWOT (Strength- Weakness-Opportunity-Threat) analysis.”

NCERT (2026-27 edition):
Helpful in comparative analysis – “… The ratios are not be calculated for one year only. When many year figures are kept side by side, they help a great deal in exploring the trends visible in the business.”

NCERT (2026-27 edition):
Ignore Qualitative or Non-monetary Aspects – “… Accounting provides information about quantitative (or monetary) aspects of business. Hence, the ratios also reflect only the monetary aspects, ignoring completely the non-monetary (qualitative) factors.”