Ratio Comparison and Industry Averages

Chapter 3 discusses ratio analysis. Note that a calculated ratio value tells us little about a firm unless we compare it to something. That ‘something’ is usually analysis of ratios from the firm’s past (time trend), or ratios from the firm’s industry (industry averages). When would we prefer one comparison to the other?When might trying to adjust your firm’s ratios to the industry averages NOT be a good idea?

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