How does inflation distort ratio analysis comparisons?

Inflation will cause a company's earnings to increase even if their sales numbers remained the same. The book value and depreciation levels of the equipment used to produce the goods also remain the same, while the cost to replace these items increases. To correct for these distortions, analysis must be done in real terms to accommodate for inflation. To make these adjustments, the accountant will use a price index to adjust all values on the financial statements before making ratio analysis comparisons.