Question : Which of the following statements is true?
Option 1: A ratio could be compared or benchmarked with the last year’s ratio. It is also known as time-series analysis and past ratio.
Option 2: A ratio could be compared with the ratios of similar firms in the same industry or by industry average at the same point of time. It is known as cross-sectional analysis.
Option 3: Rule of thumb’ based upon well-proven conventions have evolved over a period of time.
Option 4: All of the above.
Correct Answer: All of the above.
Solution : Answer = All of the above.
Ratios can be compared with past ratios (time-series analysis), with ratios of similar firms or industry averages (cross-sectional analysis), and can be guided by established conventions or "rules of thumb" for evaluation.
Hence, the correct option is 4.
