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Guide To Analysing Companies, Fifth Edition by Bob Vause

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5 Guidelines for financial analysis

T HIS CHAPTER GIVES SOME GENERAL GUIDELINES on the calculation and interpretation of the ratios covered later. Perhaps the most important rule to remember is to keep it simple.

Comparability and consistency

The figures used in the analysis of a company or for the comparison of a number of companies must as far as possible be truly comparable. In calculating rates of return there is no point in taking the pre-tax profit of one company and comparing it with the post-tax profit of another. A company capitalising interest may appear to have a better profit performance than one that does not do so. If, rather than the interest figure appearing in the income statement, the total interest payment for the year ...

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