Ratio Analysis - Short Accounting Periods

stephen0183

I am looking at a company's figures with the intention in possibly buying some shares and want to do some ratio analysis to see how the company is doing period on period.

The Balance Sheet and Profit & Loss Accounts they give in the Share Offer Document relate to an 13 month period, then a 12 month period, then a 7 month period.

Am I correct in assuming that to be able to make meaningful comparisons of each ratios for the three periods, I need to:

pro-rate the figures in the P&L each to 12 months as it relates to a period of time, and

do nothing to the balance sheet as it is a snapshot of the company's assets/liabilities at that given moment?

I hope that makes sense!

Many thanks

Stephen

Bluewednesday

It depends which ratios you are looking at.

Profit margins won't be affected by shortening the period so don't bother.

You are correct about the balance sheet - it is the position on a particular date.

Let us know what ratios you are looking at and we can advise further

stephen0183

I'm looking at profit margins, which wouldn't be affected as all the figures needed are in the P&L.

The Acid Test Ratio I think again won't need changing is all the figures are on the Balance Sheet.

It's the debtor/creditor days and stock turnover which I think need the figures from the P&L to be pro rated to 12mths.

Many thanks

Stephen

Bluewednesday

No I don't think those ratios need a pro rata period as long as you've got each balance sheet for each profit and loss period.

If you pro rata the profit and loss the period end would be a different date to the debtors figure. You wouldn't have a debtors figure for that particular date.