Standards of Comparison
Standards of Comparison in Ratio Analysis
There
are broadly three based of comparison for ratios calculated from financial statements.
1. Past periods-: A comparison can be made between the most recent year and previous year. At the time of comparison, it is important to see the economic environment and political environment of the concerned periods.
2. Planed performance-: Some companies formulate there financial plans in term of different ratios. These ratios are compared with the actual ratios.
3. Industry ratio-: This is very useful basis of comparison, practically, if different
companies can be identified as being valid for comparison.
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