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Why is it important to remember that financial ratios can differ from industry to industry? Give an example of this.
It's basically because you need to keep things in context. You can't compare apples and oranges, to use a phrase. For example, airlines generally have a lot of liabilities in the form of bonds (debt financing). [ Supermarket chains don't generally use debt financing as a means to raise capital. Financial ratios or indexes are used to evaluate a firm's or an industry's financial condition. Often
they are used to judge the investment suitability of a particular company. One firm's ratios can be compared to its own past performance and/or to the performance of the industry as a whole. Financial ratios are calculated from the figures given in the firm's annual financial statement. Those kind of differences make ratio comparisons meaningless between different industries. ]
Expert answered|selymi|Points 1812|
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Asked 3/31/2011 7:54:12 AM
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