Common size balance sheets make it easier to compare which kind of firms?      A. Firms of different sizes B. Firms in different industries C. Firms that use different inventory valuation methods (FIFO vs. LIFO) D. None of the above

Which of the following statements is incorrect?   Question 6 options:   Many large firms operate different divisions in different industries, and this makes it hard to develop a meaningful set of industry benchmarks for these types of firms.   Financial ratios should be interpreted with caution because it may be difficult to say with certainty what is a "good" value. For example, in the case of the current ratio, a "good" value is neither high nor low.   Financial ratios should be interpreted with caution because higher value of profitability ratios imply greater efficiency in asset management.   Ratio analysis facilitates comparisons by standardizing numbers.   Financial ratios should be interpreted with caution because there exist seasonal and accounting differences that can reduce their comparability.

Suppose you, a stock analyst, are performing a ratio analysis and comparing a discount merchandiser with a high-end merchandiser.  Suppose further that both companies have identical ROEs.  If you apply the DuPont equation to both firms, would you expect the three components to be the same for both companies?  If not, explain what balance sheet and income statement items might lead to the differences in the DuPont equation components.

E Which one of the following statements is correct? A B E Comparing results across geographic locations is easier since all countries now use a common set of accounting standards. Peer group analysis is easier when seasonal firms have different fiscal years. Adjustments have to be made when comparing the income statements of firms that use different methods of accounting for inventory. Peer group analysis is simplified when firms use varying methods of depreciation. Peer group analysis is easier when a firm is a conglomerate versus when it has only a single line of business.