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Fianacial Ratio Analysis/Irregular items/Financial Statement

What are some of the cautions that should be considered when performing financials ratio analysis?

What are examples of irregular items? How does a change in accounting principles affect the financial statements? Who in the organization is responsible for the application of a change in an accounting principle? Why?

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What are some of the cautions that should be considered when performing financials ratio analysis?

In performing financial ratio analysis it is important to be aware of certain items in order to attain greater accuracy and understanding. Inflation may be distorted, which would impact the outcome, causing the book values of inventory and depreciable assets to vary from their replacement values. Audited financial statements should be used whenever possible for maximal accuracy. The financial data being compared needs to reflect the same time period to avoid seasonality discrepancies. Comparing two different time periods would result ...

Solution Summary

This solution discusses some cautions that should be considered when performing financial ratio anaylysis. It also gives examples of irregular items, and how a change in accounting principles affect financial statements, and who in the organizaiton is responsible for the application of a change in accounting principle. It includes references.

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