When using ratio data for comparison to other companies, analysts should: not interpret the data as a way of determining which companies will survive and outperform others. only use data from one time period. not assume that all companies in the industry are in direct competition. use industry averages, rather than individual companies, for the comparison.

When using ratio data for comparison to other companies, analysts should: not interpret the data as a way of determining which companies will survive and outperform others. only use data from one time period. not assume that all companies in the industry are in direct competition. use industry averages, rather than individual companies, for the comparison.

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter15: Ratio Analysis (ratioa)

Section: Chapter Questions

Problem 3R: a. What information does a comparison of the current ratio and acid test ratio provide? b. Is the...

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Which is not a potential problem of utilizing ratio analysis? A. trends and industry averages are historical in nature. B. financial data may be distorted due to price-level changes. C. firms within an industry may not use similar accounting methods. D. all of the above E. answer not given
In regards to benchmarking, which of the following statements is incorrect? A. Benchmarking is the practice of comparing a company with other leading companies. B. The two main types of benchmarks in financial statement analysis include benchmarking against the industry average and benchmarking against a key competitor. C.The industry average is not a useful benchmark for evaluating a company. D. Providing commonminus−size percentages in a graphical manner highlights differences
Ratio analyses may not be helpful in explaining the performance of the company. Explain the limitations of using ratio analyses in a company. Relevant examples or illustrations should be given.
Which of the following may reduce the effectiveness of ratio analysis? a. Highly diversified companies may have activities that obscure trends that may appear more clearly in single function companies. b. Management may use window dressing at the end of the year to improve apparent performance. c. Companies in the same industry may use different accounting practices which may indicate differing levels of performance that don't really exist. d. Book values may not be comparable from company to company because of the age of the asset, inflation, etc. e. All of these can reduce the effectiveness of ratio analysis.
How can you debate the benefits and pitfalls of ratio analysis as a stand-alone analysis of a company’s strengths and weaknesses?
Ratio analysis assists in identifying a company’s weaknesses. Select one: True False
Ratio analysis assists in identifying a company’s strengths. Select one: True False
a. What information does a comparison of the current ratio and acid test ratio provide? b. Is the company using leverage to its advantage? Explain. c. What other observations can be made comparing Global Technologys ratios to the following industry norms:
Please see the attached graph for questions below. What is the difference between the two companies on this ratio? What is a plausible explanation as to why they would differ? Is one company clearly different than the other? Are there economic or end-market influences that explain why the ratios differ? What might they be? Over time, is each company’s overall financial performance improving, declining, or is something strange going on? Do you think evaluating financial statements is a good idea? What do you regard as some of the shortcomings of financial ratio analysis?
Which of the following does ratio analysis in an industry set-up help compare? (Note: More than one option(s) may be correct.) ans1:A company's performance between different time period ans2:A company's performance to another ans3:A company to industry standard ans4:None of the above
Which of the following is not one of the typical uses of financial ratios? a. Comparisons to a company’s historic values b. Comparison to benchmarksc. Comparison to competitors’ values d. Comparison to zero with positive values indicating desirable ratios and negative values indicating undesirable ratios.
Benchmarking can only be used to compare between firms of the same size and working in the same sector. True False

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		not interpret the data as a way of determining which companies will survive and outperform others.
		only use data from one time period.
		not assume that all companies in the industry are in direct competition.
		use industry averages, rather than individual companies, for the comparison.