Inter-firm Comparison

Ratio analysis not only throws light on the financial position of a fum but also serves as a stepping stone to remedial measures, This is made possible due to inter-firm comparison and comparison with industry averages. A single figure of a particular ratio is meaningless unless it is related to some standard or norm. One of the popular techniques is to compare the ratios of a firm with the industry average. It should be reasonably expected that the performance of a firm should be in broad conformity with that of the industry to which it belongs. An inter-firm comparison would demonstrate the firms position vis-a-vis its competitors. If the results are at variance either with the industry average or with those of the competitors, the firm can seek to identify the probable reasons and in that light take remedial measures.

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