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4.4 Selecting a Performance Benchmark

There are two types of benchmarks that we use when we analyze a firm’s financial performance by means of its financial statements:

• Trend analysis— comparing the firm’s financial statements over time (time-series comparisons).

• Peer-group comparisons— comparing the firm’s financial statements with those of similar, or “peer,” firms.

Throughout this chapter, we have been using the second of these methods as we benchmarked H. J. Boswell’s performance against that of a peer group. However, it also makes sense to look at H. J. Boswell in terms of its historical ratios by doing a time-series (trend) analysis, which we will consider next.

Trend Analysis

As we explained at the outset of the chapter, comparing a ...