1.Trend analysis :This benchmark is based on a firm’s historical
performance.It allows management to examine each ratio over
time and determine whether the trend is good or bad for the firm.
2. Industry average
analysis :Industry analysis is another way of developing a
benchmark.Firms in the same industry are grouped by size,
sales, and product lines to establish benchmark ratios.One way of identifying industry groups is the Standard Industrial Classification (SIC) System.
3. Peer group analysis :Instead of selecting an entire industry,
management may choose to identify a set of firms that are similar in size or
sales, or who compete in the same market.The average ratios of this peer group would then
be used as the benchmark.Depending on the industry, peer groups can be as
small as three or four firms.