Certified Government Financial Manager (CGFM) 2025 – 400 Free Practice Questions to Pass the Exam

The assertion that ratios should lead to further investigation underscores the importance of using ratio analysis as a starting point rather than a definitive conclusion. Ratios can help identify trends, measure performance, and signal potential issues within financial statements. However, they should not be used in isolation. While ratios provide valuable insights, they do not capture the full context of a company's financial situation or operational conditions.

For example, a low liquidity ratio might indicate a potential cash flow problem; this prompts the need for a deeper analysis into cash management practices, accounts receivable turnover, or inventory levels. Therefore, relying solely on ratios can lead decision-makers to overlook underlying factors or nuances that could greatly influence the assessments made from the data.

This approach encourages a thorough examination of other qualitative and quantitative data, ensuring that users of financial information have a more rounded understanding before making any significant decisions.