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?

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)

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.

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?