How could an analyst determine whether a company’s ratio is good or ba

How could an analyst determine whether a company’s ratio is good or bad?

What will be an ideal response?

ANSWER

Two common benchmarks provide comparisons for determining whether a ratio is good or bad, relatively speaking.
They are:
1. Comparing a firm’s ratios against its own ratios over time. This provides a means to determine what trends might
be present.
2. Comparing a firm against an industry average may provide a comparison of the firm’s ratios against peer firms.
A firm’s ratios may also be compared to targets or goals stated by the firm’s management, such as “we expect to
increase or return on equity to 15% next year.”