Ratios provide little information unless the analyst places them in a context.After calculating the ratios, the analyst must compare them with some standard.Which of the following is/are possible standard(s)?
A)The planned ratio for the period.
B)The corresponding ratio during the preceding period for the same firm.
C)The corresponding ratio for a similar firm in the same industry.
D)The average ratio for other firms in the same industry.
E)All of the above are possible standards.

Question

Quizplus · Accepted Answer

All of the choices provided are possible standards for comparison. The planned ratio for the period helps determine if the company is meeting its goals. Comparison with the corresponding ratio during the preceding period helps determine if there has been any improvement or deterioration. Comparison with the corresponding ratio for a similar firm in the same industry provides insights into how the company is performing relative to its peers. Comparison with the average ratio for other firms in the same industry provides a broader context for the analysis. Therefore, all of these options are possible standards for comparison.

Ratios Provide Little Information Unless the Analyst Places Them in a Context.After