The purpose and importance of comparative analysis and ratio is in a comparative analysis is that is based on the item-by-item comparison that are consisting of two or more comparable alternatives. Which also are processes, products, qualifications and are important to listing sets of data and systems which they consist. Purpose would be to present together to detect the emerging trends in the company’s operations and results. In a ratio analysis knowing that in all in accounting can help a company keep score in dollars, stake holders may desire further analysis on those set of numbers. In accounting ratios allow stakeholders to determine how well a company operates in specific segments the base purpose and importance of a ratio analysis allows for much deeper review overall and comparison of a company’s operations.
The difference between a comparative and ratio analysis are that in a comparative analysis in assessing the financial performance within a company, investors are interested in the core which are sustainable earnings of a company. So to add, investors are interested in making comparisons from period to period. There are three types of comparisons to improve the decision usefulness of such financial information. One way is Intracompany basis; comparisons within a company are often useful to detect changes of in relationships that are significant trends. Another would be intercompany basis; comparisons with other companies provide insight into a company’s competitive position held. And last would be industry averages, comparisons with industry averages they provide what about in a company’s relative position within the industry. In a ratio analysis are for evaluating the financial health also shows the performance of a company. Ratio analysis uses comprehensive financial analysis with employing certain ratios. One would be liquidity ratios to ensure such a ratio to measure short term ability of the company to pay its maturing obligations and any unexpected cash that is needed. Then they use Solvency ratios to measure the ability of the company to survive over a long period of time. Profitability ratios are also used in ratio analysis to measure the income and the operating success of a company for a given period of time.
Comparative Analysis: