Question

The most effective method of evaluating financial performance of a firm is to compare the financial ratios of a firm to what?

		To key economic indicators
		To the firm's prior year ratios and to other firms which have a similiar business model
		To firms within the same location (i.e. country of corporation)
		To the original shareholder's opinions of the firm

Answer 1

Option C is correct

To the firm's prior year ratios and to other firms which have a similiar business model

Ratio analysis is a part of fundamental analysis which can be done by comparing ratios to ratios of previous year and ratios of other firms in the same industry.