Accounting - Financial Ratios taking, average

gjcxc

Does anyone know why when you are given a ratio with an Income Statement item in the numerator and a Balance Sheet item in the denominator you end up taking the "average" of the Balance sheet item in the denominator i.e. (beginnaing value + ending value)/2?

kmf229

Supersunny138 & Gazhoo

You need to know when to use average amounts in ratios in the exam.

Why would you think you wouldn't need to know this?

ramzes

If you are using schweser videos, that video explains very clearly why you take average. Rather than me posting the same video statement again, i recommend you go through it once.

ajpheif16

Supersunny is correct

Throughout the FSA section you are told to make adjustments/check the footnotes etc to ensure correct comparisons are made

Why would this not be applied to your analysis also -

Income statement - period of time
Balance Sheet - point in time

(average of assets is your adjustment to compare like with like - BS v IS)