Question

3) Describe the standards for comparison in analysis and how they can assist stakeholders in the decision making process.

Answer 1

Mainly there are Four Standards :

1) Comparison with our own companies previous years data.

2) Comparison with our competitors data of current year.

3) Comparison with current year data of industry to which our company belongs.

4) Comparison with predetermined standards which are accepted worldwide. Example debt eqiuty ratio of 0.5 is a standard accepted worldwide.

Best way of Comparing data is through Ratio analysis.

Comparing Ratios help every stakeholders may it be shareholders, government, banks or may be company itself. By comparing at ratios like P/E Ratio, Return on equity, Dividend yield shareholders can decide whether to invest in the shares or not. Comapnies can compare ratios for there self improvement. Banks can give working capital loans based on working capital ratios.

Every stakeholder will compare ratios with above 4 standards so that i can make best decision.