alleryStart learning →Over what stretch of time are a firm's ratios typically compared?
ATypically one to two years
BTypically three to five years
CTypically six to eight years
DTypically ten to twelve years
Answer & Solution
Correct answer: B. Typically three to five years
1. A single ratio means little on its own, so it needs a basis for comparison.
2. Ratios are compared over time, typically across three to five years.
3. They can also be compared to industry averages or to another company in the same industry.
4. Period-to-period and industry comparisons are what let anyone answer whether a particular ratio is good or bad.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 14 "Using Financial Information and Accounting", section 14.7 Analyzing Financial Statements_
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