In ratio analysis, the financial statements being used for comparison should be dated at the same point in time during the year. If not, the effect of seasonality may produce erroneous conclusions and decisions.

FINANCIAL MANAGEMENT

Please wait while the activity loads.
If this activity does not load, try refreshing your browser. Also, this page requires javascript. Please visit using a browser with javascript enabled.

If loading fails, click here to try again

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

A	True
B	False
C	Either A or B
D	None of the above

Explanation:

Detailed explanation-1: -Answer and Explanation: It is favorable to compare the ratios that are dated at the same point in time because: 1. Ensuring uniformity: There will be a uniform comparison amongst the ratio that is calculated at the same point in time.

Detailed explanation-2: -Horizontal analysis is used in the review of a company’s financial statements over multiple periods. It is usually depicted as percentage growth over the same line item in the base year. Horizontal analysis allows financial statement users to easily spot trends and growth patterns.

Detailed explanation-3: -Comparing financial ratios with that of major competitors is done to identify whether a company is performing better or worse than the industry average. For example, comparing the return on assets between companies helps an analyst or investor to determine which company is making the most efficient use of its assets.

Detailed explanation-4: -Answer and Explanation: The ratios that are used to compare different firms at the same point in time belong to a category of an analysis called the cross-sectional analysis.

There is 1 question to complete.

BUISENESS MANAGEMENT

FINANCIAL MANAGEMENT