In a cross-sectional comparison of firms operating in several lines of business, the industry average ratios of any of the firm's product lines may be used to analyze the multiproduct firm's financial performance.

Question

Quizplus · Accepted Answer

The use of industry average ratios of any of the firm's product lines may not be appropriate for analyzing the financial performance of a multiproduct firm as the financial ratios can vary significantly across different product lines. Therefore, a more accurate analysis would require the use of specific ratios relevant to each product line or a weighted average of the ratios of each product line.

In a Cross-Sectional Comparison of Firms Operating in Several Lines