I was reading this article and I saw that he mentioned: “A common question on the exam is: ‘When trying to calculate a ratio that mixes income statement and balance sheet statement information, when should the average values of the balance sheet information be used, as opposed to the beginning- or end-of-year values?’ Look at the intended use of the ratio - it will help you choose the appropriate data.” Edward Bace , Head of Education, EMEA, CFA http://news.efinancialcareers.co.uk/newsandviews_item/newsItemId-29662 Can somebody help me with that or at least point out where in the book I can find that information, I remember reading it somewhere. I mean when should average values be used or the beg or end of years values?- and what about the intended use.
My understanding, If its an income statement item/balance sheet use average for balance sheet, if its balance sheet/ balance sheet use ending values for both. This does not apply to all, but is generally the rule of thumb. Example: Return on Assets: Net Income/ Avg. Total Assets, Current Ratio: Current Assets/ Current Liabilities I wouldn’t concern myself with reading outside articles by charterholders stick to the curriculum.
Thank You for the help