D076 UNIT 4 Finance Skills for Managers QUIZ

Ratios are useful for analyzing and comparing company performance for at least four different reasons: - Standardization Flexibility Focus Evaluation You can standardize the companies' net incomes by - dividing both by the total sales of those companies. This will help you to see how much income in percentage terms was earned from the total sales made during the year. Standardization - ratios standardize financial data, thus making it comparable across firms—even those of distinctly different sizes. Flexibility - you can create new ratios to meet your needs Evaluation - whether the firm is achieving its stated goal to maximize shareholder wealth Focus - help you know what to focus on and help you evaluate the performance of a firm benchmarking - The process of completing a financial analysis and comparing a firm's performance to that of other similar firms There are three main comparison methods used in ratio analysis: - trend analysis, cross-sectional analysis, and progress measurement.These methods help you use ratios to analyze the financial performance of a business.