Which of the following statements is true when analyzing a company's financial ratios?

I. As long as the accounting methods used are similar, it is possible to compare two companies even if they operate in different industries.
II. Income statements would be more reflective of economic reality if replacement cost figures were used instead.

Correct Answer: II

I is incorrect because each industry has its own specific norms when it comes to ratios. For instance, it is very usual to see industries that have a low degree of operating leverage to carry higher debt loads.