Discuss the two basic method (time trend analysis and peer group analysis) for analyzing financial ratios...

Discuss the two basic method (time trend analysis and peer group analysis) for analyzing financial ratios for a company. Be sure to define what the two methods are, why it is useful and what it can tell you.

Expert Solution

Financial analysis is one of the very important aspects of financial management that helps in analyzing the strengths and weaknesses of the company.

Time trend analysis

Time trend analysis analyzes the financials of a company over a period of time say five years and creates a pattern. It measures the changes in financing, operations and investments activities of the company. The time trend analysis further analyzes whether the company is improving or deteriorating and therefore, suggests actions it should take immediately to improve the company's financial position.

Peer group Analysis

In peer group analysis the ratios of a company is compared with the peer company’s and industry average and analyzed how the company is doing in comparison of its industry peers. Peer group analysis is useful to analyze the financial standing of the company in the industry and how fair their ratios are in comparison of benchmark.

jeff jeffy answered 2 years ago

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