Question
This topic is all about Ensuring Validity of Data Comparison. Please provide an explanations from number 1-4. These are the comparisons between trading years and
This topic is all about Ensuring Validity of Data Comparison.
Please provide an explanations from number 1-4. These are the comparisons between trading years and other companies in the industry or sector can be made difficult in the following situations.
1. Changes in accounting standards and methods - such changes can result in material changes to ratios calculated. These changes should be quantified if possible and their impact on the analysis explained.
2. Accounting for exceptional items can make anomalies, and an assessment needs to be made as to whether they are a 'one off'. Companies frequently use this technique to cover a multitude of sins (including poor performance).
3. Restructuring costs - like exceptional items these reduce margins and profits. Explanations for such costs very often lack detail and care needs to be exercised when assessing their strategic implications.
4. The sale or acquisition of subsidiaries can make a material difference when assessing group structures.
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