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What are the standards for comparisons in financial statement analysis?
Wiki User
∙ 11y ago
● Intracompany-The company under analysis can provide standards for comparisons based on its own prior performance and relations between its financial items. Research In Motion's current net income, for instance, can be compared with its prior years' net income and in relation
to its revenues or total assets.
● Competitor-One or more direct competitors of the company being analyzed can provide standards for comparisons. Coca-Cola's profit margin, for instance, can be compared with PepsiCo's profit margin.
● Industry-Industry statistics can provide standards of comparisons. Such statistics are available
from services such as Dun & Bradstreet, Standard & Poor's, and Moody's.
● Guidelines (rules of thumb)-General standards of comparisons can develop from experience. Examples are the 2:1 level for the current ratio or 1:1 level for the acid-test ratio. Guidelines, or rules of thumb, must be carefully applied because context is crucial.
All of these comparison standards are useful when properly applied, yet measures taken from a selected competitor or group of competitors are often best. Intracompany and industry mea sures are also important. Guidelines or rules of thumb should be applied with care, and then only if they seem reasonable given past experience and industry norms.
Wiki User
∙ 11y ago
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