6.2 Lecture_12_Thursday_20_August

Differentoperatingandaccountingpracticesdistortcompari

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Unformatted text preview: mall sample of internet companies. 31 31 What are some potential problems and What limitations of financial ratio analysis? limitations • • • • • • Comparison with industry averages is difficult if the firm operates many different divisions. Often difficult to identify industry category The whole industry might be sick “Industry Average” performance not necessarily good. Seasonal factors can distort ratios. Different operating and accounting practices distort comparisons. “Window dressing” techniques can make statements and ratios look better. Sometimes hard to tell if ____________________________ Difficult to tell whether company is, on balance, in strong or weak position. 32 32 What are some qualitative factors analysts What should consider when evaluating a company’s likely future financial performance? likely • • • • • • • Are the company’s revenues tied to 1 key customer? To what extent are the company’s revenues tied to 1...
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