The most acceptable method of evaluating the financial statements of a firm is to compare the firm's current:
A)financial ratios to the firm's historical ratios.
B)financial statements to the financial statements of similar firms operating in other countries.
C)financial ratios to the average ratios of all firms located within the same geographic area.
D)financial statements to those of larger firms in unrelated industries.
E)financial statements to the projections that were created based on Tobin's Q.

Question

Quizplus · Accepted Answer

Comparing a firm's current financial ratios to its own historical ratios is the most acceptable method of evaluating the financial statements of a firm as it provides insight into the firm's financial performance and trends over time. Other options, such as comparing to firms in other countries or unrelated industries, may not provide relevant or comparable information. Comparing to the average ratios of all firms in the same geographic area may be useful, but can still be impacted by industry and other factors. Using projections based on Tobin's Q may provide valuable information but is not a standard method of financial statement evaluation.

The Most Acceptable Method of Evaluating the Financial Statements of a Firm