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limitation of ratio analysis

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › limitation of ratio analysis

  • This topic has 3 replies, 2 voices, and was last updated 11 years ago by MikeLittle.
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  • March 22, 2014 at 12:28 pm #162809
    emmu
    Member
    • Topics: 31
    • Replies: 40
    • ☆☆

    what is the differenced among these two limitation of ratio analysis….one seasonality and the other unrepresentative year end balances??? or are the basically same??

    March 22, 2014 at 6:20 pm #162814
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23317
    • ☆☆☆☆☆

    There was a question many years ago where the company was a chocolate manufacturer. In the UK, Easter is a MAJOR time for chocolate sales. Easter is movable, sometimes it’s in March and sometimes it’s in April.

    This (stupid!) company had a 31 March year end.

    So some years they had 2 big seasons, sometimes just 1, but occasionally they had no big seasons. Trying to make a comparison between April this year with April last year could cause huge problems.

    Non-comparability is where you try to compare. Specialist tuition provider with, say, a University. They both provide tuition but in different niche markets.

    That’s the same problem when you compare any company with an industry average – they simply are non-comparable (at least, if you do compare, great care must be taken to bear in mind the different markets of a niche company compared with an industry)

    Ok?

    March 23, 2014 at 6:54 pm #162875
    emmu
    Member
    • Topics: 31
    • Replies: 40
    • ☆☆

    Thanks

    March 23, 2014 at 7:01 pm #162883
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23317
    • ☆☆☆☆☆

    You’re welcome, as ever!

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