Question 2.7: Describe benchmarks that can be used when assessing financia...

Financial performance measures and financial ratios mean very little in isolation. In order to assess financial performance, we need to compare with benchmarks such as:
– target performance measures set by managers;
– sector or industry norms;
– performance measures and ratios of similar companies;
– performance measures and ratios of the same company from previous years.
All such comparisons should be made with caution due to the problems in analysing financial performance arising from differing accounting policies and creative accounting.