Laura Witherspoon has just been hired as a financial analyst for a growing company, B & Q Foods Inc. (BQF), which uses ASPE. The CEO, Marsha Delaney, is curious about the use of financial statement ratios and their underlying assumptions.

Required: Marsha has asked Laura to answer the following questions:

a) Why are financial statement ratios used?

b) What is meant by the statement that there are no generally accepted financial ratios? Why can acting on the assumption that financial ratios are all prepared on the same basis lead to misleading conclusions?

c) What are some drawbacks to keep in mind when comparing BQFs ratios to those of its peers or to the historical trends of BQF?