This essay focuses on extraordinary items and gains. When these items exist, the reader must exercise extra caution in making comparisons.
Finally, many corporate income statements contain nonoperating items such as extraordinary items and gains and losses from discontinued operations. When these items exist, the reader must exercise extra caution in making comparisons. To assess the future prospects of a group of companies, you may want to compare income statements before taking into account the effects these items have on income.
Calculation of an overall inflation rate—for a country, say, and not just for consumers—requires an index with broader coverage, such as the GDP deflator.
The CPI basket is mostly keep constant over time for consistency, but is tweak. It is occasionally to reflect changing consumption patterns—for example, to include. The new hi-tech goods and to replace items no longer widely purchased. Because it shows how, on average, prices change over time for everything. It is produce in an economy, the contents of the GDP deflator vary each year and are. They are more current than the mostly fix CPI basket. On the other hand, the deflator includes nonconsumer items (such as military spending) and is therefore not a good measure of the cost of living.
Understand the Possible Effects of Inflation
Inflation, or an increase in the level of prices, is another important consideration in analyzing financial statements. The statements, to be used by outsiders, are based on historical costs and are not adjusted for the effects of increasing prices. For example, consider the following trend in a company’s sales for the past three years: