To provide a meaningful interpretation of a financial ratio a benchmark is needed.

Name: To provide a meaningful interpretation of a financial ratio a benchmark is needed.
Brand: Quizplus
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Question

Quizplus · Accepted Answer

A benchmark is a standard for comparison that provides context for a financial ratio. Without a benchmark, it is difficult to interpret whether a ratio is good or bad. For example, a current ratio of 2 may seem good, but if the industry average is 4, then the company may not be managing its liquidity as well as its competitors.

To Provide a Meaningful Interpretation of a Financial Ratio a Benchmark