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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Identify two types of standards used in ratio analysis. Explain why it is desirable to use both types.

To determine

State two types of standards used in ratio analysis and their importance.

Explanation

Ratio analysis

One of the techniques of financial statement analysis is ratio analysis. In this analysis, each item in the statement is expressed in terms of percentages or ratios by dividing that item by another item or account to evaluate the financial performance of the company. Ratios are compared with industrial standards to make comparisons better.

Historical and industrial standards are two types standards used in ratio analysis. They are explained as follows:

  • Historical standard: Financial performance can be evaluated by comparing ratios over the years...

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