Eva Gomez is considering investing money in the common stock of Casa Corporation. She has obtained the annual report of the company and calculated the ratios presented in your text. Eva knows that her calculations are accurate, but does not know if the
ratios indicate favorable or unfavorable things about the company. What three standards of comparison are available to Eva? What would each of the standards tell her about her ratios?
Three commonly used standards of comparison are rule-of-thumb measures, past performance of the company, and industry norms. Rule-of-thumb measures are overall standards not applicable to any specific industry. Eva could learn some of these from financial analysts or professors. These general standards would reveal any ratios that are significantly different from those of most other businesses. Eva could also investigate the past performance of the company. This would provide her with a history of company performance and indicate any positive or negative trends. The most informative of Eva's three options would be to compare her ratios with those of other companies in the same industry. This would tell her how well this company has performed relative to its competitors. She could find these from several published sources such as Dun and Bradstreet's "Industry Norms and Key Business Ratios," The Wall Street Journal, Barron's, or Fortune.
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Indicate whether the statement is true or false
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Answer the following statement true (T) or false (F)
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