D076 - Finance Skills for Managers Unit 4
4 Reasons Ratios are Useful - 1 - Standardization 2 - Flexibility 3 - Focus 4 - Evaluation Benchmarking - The process of completing a financial analysis and comparing a firm's performance to that of other similar firms. Trend Analysis - Comparing a firm's ratios across time Cross-Sectional Analysis - Compares a firm's financial ratios to other firms' ratios or industry averages Seasonal Firms - Firms whose performance varies according to the season. Which statement below is an example of how ratios are used in the field of finance? - A firm's ratios are compared with those of a benchmark peer group to determine the firm's relative strength and performance. - Ratio analysis is performed based on a strict set of rules governed by generally accepted accounting principles. - A firm's ratios may vary year over year, so they are not helpful for evaluating whether firm goals are met. - Ratios are helpful only when comparing companies that are the same size and that use the same operational style. - A firm's ratios are compared with those of a benchmark peer group to determine the firm's relative strength and performance.
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