given a question that lists balance sheets for two years and requires that we compute ratios, is it safe to assume that we use average values as opposed to current year values? is that standard in industry? thanks!
I don’t think that’s a safe assumption at all… Cash, Quick, and Current ratios for example are often compared year to year and they all use ending balances.
No, for a balance sheet you take (beg bal+ending bal)/2 for current year avg
absolutely not!! some yes…ie inventory turnover, you want the average receivables, but as above, current/quick etc, use the current figures unless asked.
anytime an average is involved, it will be from a BALANCE SHEET element. if you’re only given final figures, then that’s all you use. but if you’re given I/S and B/S elements and asked for a ratio where a B/S element is involved - more often than not this should be an average.