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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??
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?
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