Question

Explain how ratios are used within the corporation and how they are used to compare corporate results with outside corporations

Answer 1

Ratio analysis is an important technique for financial statement analysis. Ratio analysis can be done for within the corporation and outside the corporation by comparing the results with similar industry corporations.

For example, profit margin ratio can be used inside the corporation to know the profitability of the corporation and at the same, it can also be used outside the corporation by comparing it with the profit margin ratio of the industry. While using the ratios outside for comparison, the comparison should be done with a similar industry and similar Level Corporation ratios, for example, Apple Inc. should compare its ratios with Google and similar industry corporations.