answer - How do you standardize balance sheets and income...

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How do you standardize balance sheets and income statements? We use the common-size balance sheets (Compute all accounts as a percent of total assets)and common-size income statements (Compute all line items as a percent of sales) Why is standardization useful? Standardized statements make it easier to compare financial information, particularly as the company grows.They are also useful for comparing companies of different sizes, particularly within the same industry. What are the major categories of financial ratios? Short-term solvency or liquidity ratios Long-term solvency, or financial leverage, ratios Asset management or turnover ratios Profitability ratios Market value ratios
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How do you compute the ratios within each category? Every ratio has its own formulation ,we just use these formulation to compute these ratio Liquid ratio Current Ratio = CA / CL Quick Ratio = (CA – Inventory) / CL Cash Ratio = Cash / CL What are some of the problems associated with financial statement analysis? There is no underlying theory, so there is no way to know which ratios
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answer - How do you standardize balance sheets and income...

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