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.

---

Definitions:

Circular Reasoning

A logical fallacy in which the conclusion of an argument is assumed in one of the premises, offering no real evidence for the claim.

Social Psychology

The academic examination of the ways in which the real, perceived, or suggested presence of others affects individuals' mental processes, emotions, and actions.

Components

The constituent parts or elements that make up a system, object, or complex structure.

Sociological Social Psychologists

Specialists who study how individual behavior and identities are influenced by social structures, cultures, and groups.