Several different situations are outlined below that may affect the financial results of two different companies operating in the same industry.

Instructions
(a) For each of the situations described above, explain how it would affect the ratio given be side it. For example, in item 1, cash sales would not affect the numerator (net credit sales) or the denominator (average accounts receivable) in the calculation of the receivables turnover ratio, whereas sales on account would affect both.
(b) Explain how each of the above situations would affect a comparative financial analysis.

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Situation Ratio 1. Company A sells most of its merchandise for cash; Company B sells most of 2. Company A reported a loss from discontinued operations; Company B had 3. Company A uses the straight-line depreciation method and an estimated 4. Company A is experiencing a high level of inflation in its primary country of 5. Company A reported other comprehensive income, Company B was a private Receivables turnover Return on assets its merchandise on account no discontinued operations. useful life of 5 years; Company B uses the straight-line depreciation Asset turnover method and an estimated useful life of 8 years for similar equipment. operation; Company B is operating in a country with no or little inflation. company and reported no comprehensive income. Return on common shareholders' equity Profit margin