Difficulty: Easy
Correct Answer: All of these
Explanation:
Introduction / Context:
Financial ratios on their own are just numbers. The real value emerges when ratios are compared against appropriate benchmarks that provide context about trends, plans, and competitive position. This question checks your understanding of the three cornerstone comparison bases used in practical ratio analysis: historical (time-series), projected (pro forma targets), and cross-sectional (peer benchmarking).
Given Data / Assumptions:
Concept / Approach:
Analysts triangulate performance using: (1) trend analysis against the firm’s own past, (2) plan-vs-actual comparison against internal targets, and (3) external benchmarking against carefully chosen peers or industry averages. Each lens answers a different question: Are we getting better over time? Are we on plan? How do we stack up versus competitors?
Step-by-Step Solution:
Verification / Alternative check:
Why Other Options Are Wrong:
Common Pitfalls:
Final Answer:
Discussion & Comments