Extraordinary Items and Ratio Analysis

Extraordinary Items and Ratio Analysis

    • Choose at least two (2) items or events that you would consider to be extraordinary to a company. Propose the manner in which you would disclose these items or events to investors. Justify your response.
  • Determine the two (2) financial ratios that you believe to be the most important indicators of financial health for a company. Predict two (2) positive or two (2) negative financial outcomes should the chosen ratios change dramatically from one year to another. Provide a rationale for your response.

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An extraordinary item is a term used in accounting to show expenses that are unusual and significant in size. Let’s assume that Company UVW, an American company, operates a chain of beach resorts in the Florida Keys, and the resorts are damaged by an earthquake. Company UVW would show the expenses related to the earthquake in a separate line item on the income statement. In order for an expense to be extraordinary, the occurrence should not be normal and reasonable. Another example of extraordinary expenses…

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