Which type of analysis involves a comparison of current to past performance and the evaluation of developing trends?
Answer & explanation
Correct answer: option 1
Ratios help comparisons with certain bench marks to assess as to whether firm’s performance is better or otherwise. For this purpose, the profitability, liquidity, solvency, etc., of a business, may be compared:
(i) over a number of accounting periods with itself (Intra-firm Comparison/Time Series Analysis),
(ii) with other business enterprises (Inter-firm Comparison/Cross-sectional Analysis) and
(iii) with standards set for that firm/industry (comparison with standard (or industry expectations).