Do Managers Really Max. Determine the required rate of return on each security. Calculate a weighted average of these required returns. Published industry averages are only approximations and provide the user with general guidelines rather than scientifically determined averages of the ratios of all or even a representative sample of the firms within the industry. Accounting practices differ widely among firms.
Financial ratios can be too high or too low.
An industry average may not provide a desirable target ratio or norm. Many firms experience seasonality in their operations. Ratios may be calculated in different ways. The Process Analyzing the investment and financing choices open to the firm. Projecting the future consequences of current decisions.