When it comes to Total Assets, should i use an average for the two years when calculating EBIT/TA? It seems to be inconsistent considering I wouldn’t use an average for WC/TA. I guess what im asking is if you are using a ratio of two balance sheet items i don’t believe you would use an average figure, but for any crossover you would. Is my thinking correct on this?
Your thinking is correct. When you mix financial statement components for ratios, you use an average for the balance sheet component.
a Company’s EBIT is earned over a period of time, whereas total assets is a snapshot of the company’s position at a single point in time.
Kiddo, a balance sheet is a statement of position, not for a period end like the income statement. You average Begin/End year balance sheet items with the stated income statement items.
Thanks gents!
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