Measuring Profitability

Question 1

What is the difference between interfirm and intrafirm comparison?

Answer 1

Interfirm is a comparison concerning 2 different firms.

Intrafirm is a comparison with a firm itself.

Question 2

What are the 2 advantages of using ratios?
1.
2.

Answer 2

1. Very widely used.
2. Simplifies financial issues within the business.

Question 3

What do ratios not tell you about a business?
1.
2.

Answer 3

1. Competitive advantages.
2. Quality of a business’s products or services.

Question 4

What are 2 disadvantages of using ratios?
1.
2.

Answer 4

1. You have to make a subjective judgement.
2. Markets change overtime.