In ratio analysis, the financial statements being used for comparison should be dated at the same point in time during the year. If not, the effect of seasonality may produce erroneous conclusions and decisions.

Question

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Comparing financial statements from different time periods can be misleading due to seasonal fluctuations in business operations. To accurately analyze and compare financial ratios, the statements should be taken from the same point in time during the year.

In Ratio Analysis, the Financial Statements Being Used for Comparison