Ratios Should Not Be Used to Compare Two Companies in Different

question 36

Multiple Choice

Ratios should not be used to compare two companies in different industries since wide variations across industries can occur.But even within an industry, sometimes comparisons can be problematic.Which of the following is/are a reason(s) for concern?

• A)Methods of calculating ROE may differ between analysts
• B)Company choice between weighted average and FIFO inventory valuations
• C)Companies are based in different countries
• D)All of these are reasons for concern.

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Definitions:

Ratio

Shows the relative sizes of two or more values.

Quart

A unit of liquid volume equivalent to a quarter of a gallon, or approximately 0.946 liters.

Abbreviation

A shortened form of a word or phrase used to save space or time in written communication.

Numerator

The top number in a fraction that indicates how many parts of a whole are being considered.