Question

If the firm had a pronounced seasonal sales pattern or if it grew rapidly during the year, how might that affect the validity of your ratio analysis? Seasonal sales patterns would most likely affect the liquidity ratios, with little effect on asset management ratios. Rapid growth would not substantially affect your analysis. If the firm had sharp seasonal sales patterns, or if it grew rapidly during the year, many ratios would most likely be distorted. It is more important to adjust the debt ratio than the inventory turnover ratio to account for any seasonal fluctuations.

Answer 1

Answer:If the firm had sharp seasonal sales patterns, or if it grew rapidly during the year, many ratios would most likely be distorted.

Explanation: Fluctuations in Economics patterns have distorting effects on the ratios of a company or an economy especially if the the seasonal patterns has been consistent for a certain period. THE VALIDITY OF MOST RATIOS ARE SEVERELY AFFECTED BY SHARP CHANGES WHICH MAKES ECONOMIC WATCHERS FEEL THE RATIOS ALREADY ANALYSED ARE NOT VALID.

A consistent flow pattern is desired in an economy and in business Organisation as it helps to give Economic watchers enough confidence in the ratios already existing.