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:

Cortex

The outer layer of various organs or structures, such as the brain's cerebral cortex, involved in high-level functions including consciousness, memory, and thought, or the kidney's cortex, involved in filtration and blood processing.

Tracheids

Water-conducting cells in the xylem of vascular plants that are elongated, with thickened cell walls and tapered ends, contributing to the support and transportation of water and minerals.

Vessel Elements

Shorter, wider plant cells than tracheids, found in the xylem, which efficiently transport water and nutrients vertically through the plant.

Perforation Plates

Structures found in the vessel elements of some plants, allowing for the flow of water and nutrients between cells.