Question

Main advantages of inter-firm comparsion. [Provide detail explanation ]

Answer 1

When a firm decides to operate business in today's competitive economic market, it manages its financial statements to meet its pre-determined objectives of profit making and to sustain. Inter-firm comparison as the name suggests encompasses firms within the same industry comparison over its recorded data and information in order to reflect true financial position and strengthen external users confidence.

Main advantages of inter-firm comparison are listed down:

1.Inter-firm comparison not only reflects on financial position but also reflects firm's weakness or reasons behind its falling short from the set standards within an industry which in turn facilitates in decision making.

2.Inter-firm comparison calls for pricing and cost regulations within an industry.

3.Inter-firm comparison provides with control and efficient use of resources as resources are scarce by determining firm's productivity and efficiency through ratios and other measures within an industry which in turn minimize wastage and losses.