Inter firm & Intra firm Comparison | Requisites | Procedures

Requisites for inter-firm or intra-firm comparison

The followings are the per-requirements for meaningful and effective inter firm or intra firm comparison.

1. Similarity of Firms or Departments

Similarity means an age, size of business unit or department, character of production, nature of forms of business organization and the market in which the business units or departments are catering should be the same. For example, a newly started company cannot be compared with 10 years old company. Partnership firm cannot be compared with public limited company.

2. Use of Accounting Ratios

Money values are not useful for comparison. Standard accounting ratios are calculated in order to find out the strength and weakness of the business unit. Same type of accounting ratios should be selected for inter firm comparison.

3. Similarity in Accounting Policies

The selected comparing business units should have uniformity in the use of accounting policies regarding valuation of closing stock, method and rate of depreciation, provision of gratuity, purchase policy, sales policy and the like. If not so, the comparison does not give meaningful results.

4. Adjustments for Inflation

Before calculating the ratios, an analyst should consider the inflation. If so, correct reasons may be find out through comparison and follow corrective actions.

Procedure for Inter firm comparison

The following procedure can be adopted for Inter firm Comparison

1. An analyst should collect all the relevant data of the companies which are participating in inter firm comparison.

2. All the information with adequate interpretation of various ratios should be submitted before the every management of the participating companies to determine the efficiency by comparing the performance of other companies.

3. All the efforts are being made by the analyst to highlight upon the weaknesses and reasons why the results vary from one company to another.

Leave a Reply

Recent Posts

Related pages

meaning of nationalized bankfinding predetermined overhead ratewhat is rbi and its functionsdematerialized securitiesdrawer drawee payeembo benefitsmaterial overhead costreciprocal allocation methodcreditors days formulacompetitive parity methodfob marketinghow to calculate payback periodfigurehead role of managerdifficulties of capital budgetingbank balance confirmationforms of unethical advertisingteaming and ladingstandardisation in international marketingconsumer durables meaningexamples of mixed economiessemi variable cost graphroles and responsibilities of managerial economistinterpretation of comparative balance sheetdefine capexdisadvantage of autocratic leadershippreferential allotment of sharescrisil managementmonopolies economicslimitations of mbodefinition of wageringintra defhorizontal merger companiespv factor formuladefine treasury billsdupont ratiostarget costing advantagesaverage receivable turnovermanagerial accounting toolsdisadvantages of marketing strategystrengths and weaknesses of random samplingfunctional and activity based budgetingratified purchase contractdisadvantages of systematic random samplingimp insurancesebi guidelines for issue of sharesprocedure of allotment of sharesrediff online shopping trackingdisadvantage of random samplingshort note on debentureimportance of budgetary controlpetty bookhorizontal merger companiescaveat meaning lawdecentralised companyidbi share ratemeaning of professadvantages and disadvantages of methods of data collectionfdi exampledisadvantages of probability samplingdemerits of sciencedisadvantages of marketing strategyconvertible redeemable preference sharesexamples of horizontal mergertrade payables turnovermeaning of creditor in hindiadvantages of informal educationvertical takeoverdefinition of retailingdisadvantage of systematic samplingformula leverage ratiodrawer on chequetop product failuresdefinition of forfeitingdebentures definition accountingsteps formation joint stock companydefine suretiestax avoidance indiadefinition of privity