• Ratios are representations of average conditions that existed in the past, and are influenced by the selection of accounting methods (e.g., weighted average vs. FIFO cost flow; accelerated vs. straight line depreciation);

• Since financial statements are based on historical data, they do not reflect price level effects and real economic values;

• Computation of ratios are not standardized, and thus are influenced by data selection choices;

• Changes in many ratios are strongly associated with each other; e.g., changes in the current ratio and quick ratio between two different times are often in the same direction, and usually proportional. Therefore, it is not necessary to calculate all ratios, and interrelationships between/ among the ratios should be investigated;

• When ratios for the same company are compared over a period of time, care must betaken to analyzethe changes in operating conditions (e.g., changes in economic conditions, changes in product lines or geographic markets, changes in prices, levels of inflation, etc.); and

• When a specific firm is compared with similar firms, differences between/among the firms should be recognized (e.g., accounting policies, type of financing available, operating characteristics such as product lines, size and geographical location).

• The last, but the most important, consideration for the analysis is to obtain audited financial statements. Although unaudited statements might provide valuable information about a company, conclusions reached with this information are questionable, because its use brings up fair representation issues. Financial statement analysis is a multi-faceted issue. An analyst should consider all available techniques and ratios in order to produce useful reports to investors.