In Ratio Analysis, the Financial Statements Being Used for Comparison

question 183

True/False

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.

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Definitions:

Depreciation Expense

Depreciation expense is the allocated amount of the cost of a tangible asset over its useful life, recognized in accounting to account for the decrease in the asset's value over time.

Net Income

The company's remaining earnings once all costs, taxes, and expenses are deducted from its total revenues.

Direct Method

A way of preparing the cash flow statement where actual cash receipts and payments are reported, rather than adjusting net income.

Net Cash Flow

The difference between a company's cash inflows and outflows in a given period.