Essay question: 2. You are trying to compare the financial performance of your firm to that...

Essay question: 2. You are trying to compare the financial performance of your firm to that of similar firms. What are some of the key problems you might encounter in doing this comparison?

Expert Solution

when we are trying to compare the financial statement of firm to the other firm, then the problem which will be encountered are as follows--

A. Different capital structure of both the companies because some companies are highly finance with debt capital whereas other companies are having higher equity capital.

B. Different Assets and liabilities of both the companies will beanother problem because they will be having different Assets and liabilities and will be trying to grow upon different assets.

C. Both companies are having different accounting assumptions because some will be applying straight line depreciation method where as another will be applying declining definition.

D. Both company may be following different inventory valuation method and which will be leading to different inventory value for the company.

E. company may be having higher capital expenditure than other and that will not be reflected properly in the books of account so that can be visible in the future growth.

F. different level of management of the company and business reputations are also not visible in the financial performance.

jeff jeffy answered 1 year ago

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