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Trend Ratios

Involve a comparison of the ratios of a firm over time, that is, present ratios are , compared with past ratios for the same firm. The comparison of the profitability of a firm, say, year 1 through 5 is an illustration of a trend ratio. Trend ratios indicate the direction of change in the performance-improvement deterioration or constancy-over the years.

The Inter-firm comparison involving comparison of the ratios of a firm with those of others in the same line of business or for the industry as a whole reflects its performance in relation to its competitors.

Other types of comparison may relate to comparison of items within a single year’s financial statement of a firm and comparison with standards or plans.

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