In finance, ratios are usually two financial statement items that may be related to one another and may provide the prudent user a good deal of information. Of the myriad of ratios that could be generated, some will be more meaningful than others. The trick is in the way ratios are analyzed and used by the decision maker. A good strategy is to compare the ratios to some sort of benchmark, such as industry averages or to what a company has done in the past, or both. Once ratios are calculated, an analyst needs some benchmarks to find out where the company stands at that particular point.
Useful benchmarks are industry comparisons and company trends.
It may be useful to compare a company to certain industry averages to get a feel for how the company is performing. In that case it is necessary to obtain industry performance measures. There are a number of sources for industry figures. Commercial Sources - A number of companies publish information on industry comparisons. Government Sources - There are a number of government sources of helpful industry information, such as the U.S. Industrial Outlook and Quarterly Financial Reports .