- Use of ratios in performance evaluation
Ratios provide an evaluation platform for companies. Through calculation of ratios, firms have two to three options for evaluation. The options involve a set of conditions that make the use of ratios possible. This is because ratios only play a comparison role and cannot be used in isolation. They have to be applied together with a set of other ratios to make comparison hence deduce information that enables performance evaluation.
The first option in using ratios involves the application of ratios together with industrial ratios of the firm’s industry. Often, the industry in which the firm operates in have industrial ratios. ...