discussion 2 fin 534
April 5th, 2023
Im studying for my Writing class and need an explanation.
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discussion 2 fin 534
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Analysis of Financial Statements
Please respond to the following:
- Determine why it is sometimes misleading to compare a companys financial ratios with those of other firms that operate within the same industry. Support your response with one (1) example from your research.
i will need a response to a student also this is the student response
Danielle Debardelaben
RE: Week 2 Discussion
- Sometimes it can be confusing to compare a companys financial ratios with other firms that operate within the same industry because each may use different accounting methods.
- Accounting information used in calculation of ratios is affected by the estimates, assumptions and diverse accounting methods used by companies.
- For example, a small company cares more about its ratios emphasis on current assets and liabilities instead of market value ratios.
- For example, a company that uses the FIFO method to value its inventory will have a higher inventory value compared to the company that uses LIFO.
- Ratios calculated from this type of data vary and provide false information when used to compare the two companies even if they operate in the same industry.
