R.J. Falk is the chief executive officer of Ventura Electronics. Falk is an expert engineer but a novice in accounting. Falk asks you, as an accounting major, to explain
(a) The bases for comparison in analyzing Ventura financial statements and (b) the limitations, if any, in financial statement analysis.
Broadening Your Perspective 703
Instructions:
Write a memo to R.J. Falk that explains the basis for comparison and the factors affecting quality of earnings.