Peer group analysis can be performed by:
A) management choosing a set of firms that are similar in size or sales, or who compete in the same market.
B) using the average ratios of this peer group, which would then be used as the benchmark.
C) identifying firms in the same industry that are grouped by size, sales, and product lines in order to establish benchmark ratios.
D) Only a and b relate to peer group analysis.

Question

Quizplus · Accepted Answer

Peer group analysis involves selecting a group of similar firms to use as a benchmark for financial analysis. Management typically chooses firms that are similar in size, sales and industry for this purpose. Once a peer group has been identified, their average ratios can be used to compare against the company being analyzed. Therefore, both options A and B are valid components of peer group analysis. Option C does not exclude the other options, but it may not capture all relevant firms for comparison. Overall, options A and B are the best choices for performing peer group analysis.

Peer Group Analysis Can Be Performed By