Uses of Ratio

Uses of Ratio

Ration is used for the different types of comparison for performance evaluation. These comparisons can be categorized into period comparison, industry comparisons, and average industry comparison.

1.    Period Comparison

In period comparison, ratio of a period is compared with the ration of another period for an entity. This comparison provides vital information about the entity performance over the period of time.

2.    Competitor ratio Comparison

In competitors’ ratio comparison, the ration of entity is compared with the ratio of close competitor in the market. This ratio provides useful information about the performance of the entity as compared to its competition.

3.    Industry Ratio Comparison

In industry ratio comparison, the ratios of entity are compared with industry average ratio. This type of comparison helps to judge the performance of the entity in relation to the industry average performance.