In order to be meaningful, a company's ratios should be compared to their prior year's ratios, not industry benchmarks.

Question

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While comparing a company's ratios to their prior year's ratios is useful for tracking their own performance over time, it is also important to compare them to industry benchmarks to evaluate how the company is performing in relation to its competitors or the overall industry trends. Therefore, both comparisons are necessary to gain a comprehensive understanding of a company's financial health.

In Order to Be Meaningful, a Company's Ratios Should Be