- CFA Exams
- CFA Level I Exam
- Study Session 7. Financial Reporting and Analysis (2)
- Reading 24. Financial Analysis Techniques
- Subject 1. Analysis Tools and Techniques

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**CFA Practice Question**

You are comparing two companies by looking at financial ratios they publish in their annual reports. You know that ______

II. the financial ratios of a large firm and a medium-size firm cannot be compared.

III. these financial ratios will capture the relevant differences between the two firms, leaving you with no need to look at the rest of the reports.

I. you must be careful because not all financial statement ratios are computed the same way.

II. the financial ratios of a large firm and a medium-size firm cannot be compared.

III. these financial ratios will capture the relevant differences between the two firms, leaving you with no need to look at the rest of the reports.

A. I only

B. II only

C. I and III only

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**User Contributed Comments**
9

User |
Comment |
---|---|

yesficom |
Size is to be taken into account when looking at ratios |

jonhy |
No. Size does not matter: that's why we use ratios (relative values) instead of absolute values |

MaiHuong |
why financial ratio can be computed in different ways? i think they have to follow the same rule |

copus |
I was under the impression that ALL financial ratios are calculated in the same way. Clearly the inputs to these ratios may be calculated based on different assumptions, but the ratio is objectively defined - it is a formula! |

carlos2 |
No copus. Although the definitions of the formulas are the same but the definitions of inputs can be different for different companies. |

Sam123456 |
I've heard that size matters though. |

davcer |
inputs are different thus the calculation can be different |

NickGerli |
II and III are more obviously wrong. |

dbalakos |
Yes!! Of course you can compare a growth company with a value company!! Come oon |