Which two of the following represent the most effective methods of directly evaluating the financial performance of a firm?
I.comparing the financial statements of the firm to the financial statements of similar firms operating in other countries
II.comparing a firm's financial ratios to those of other firms in the firm's peer group who have similar operations
III.comparing the current financial ratios to those of the same firm from prior time periods
IV.comparing the financial ratios of the firm to the average ratios of all firms located in the same geographic area
A)I and II only
B)II and III only
C)III and IV only
D)I and IV only
E)I and III only

Question

Quizplus · Accepted Answer

Comparing a firm's financial ratios to those of other firms in the firm's peer group who have similar operations (II) and comparing the current financial ratios to those of the same firm from prior time periods (III) are the most effective methods for directly evaluating the financial performance of a firm. Comparing financial statements of the firm to those of similar firms operating in other countries (I) may be useful for benchmarking or identifying potential opportunities, but is not as effective for direct evaluation of financial performance. Comparing financial ratios of the firm to the average ratios of all firms located in the same geographic area (IV) may not be as relevant since firms in the same geographic area may not have similar operations or industries.

Which Two of the Following Represent the Most Effective Methods