Yard Stick Required in Ratio Analysis

1. Past performance of the company

The company's previous performance past ratio is needed to gauge or measure the company's presentation and in performance in particular changes whether good favorable, improved, even or same worse such the past.  Such comparison is rather then required to interpret the company's performance bearing in mind the factors such influenced the past and present performances.

2. Average industry ratios

These are helpful as they signify the average performance of various companies in a specified industry that is it gives the minimum presentation of a number of companies in a provided industry. These ratios are helpful in so far as to enable such analyst to create a reasonable comparison of the company's performance vis-à-vis another companies in the same industry.  Though, for this yardstick to be helpful the term average must include those companies that are not extremely.  That is very weak and very strong companies - that should be excluded to arrive on industry average figures.

3. Ratio of successful companies

Practically if the company can get figures of competitors who such are leading in the market so as to gauge to enable its performance against better performance.  Still this information is hard to get and sometimes it calls for private investigators as Private Eyes Ltd.

4. Ratio of budgeted performance

These are compared along with actual investigations and performance ratios are made of any unfavorable variance that should be explained.