1. Past performance of the company
The company’s past performance (past ratio) is used to measure or gauge the company’s performance and in particular the change in performance whether good (favourable), better, same or even worse than the past. Such comparison is then used to interpret the company’s performance bearing in mind the factors that influenced the present and past performances.
2. Average industry ratios
These are useful as they indicate the average performance of various companies in a given industry i.e. it gives the minimum performance of a number of companies in a given industry. These ratios are useful in so far as to enable the analyst to make a reasonable comparison of the company’s performance vis-à-vis other companies in the same industry. However, for this yardstick to be useful the term average should include those companies which are not extremely. I.e. very strong and very weak companies – which should be excluded to arrive at industry average figures.
3. Ratio of successful companies
Useful if the company can get figures of competitors who are leading in the market so as to enable it to gauge its performance against better performance. However this information is difficult to obtain and sometimes it calls for private investigators e.g. Private Eyes Ltd.
4. Ratio of budgeted performance
These are compared with actual performance ratios and investigations are made of any unfavorable variance which should be explained.