CMA Final · Cost and Management Audit · Management Reporting Issues and Analysis
In a management report, a ratio such as return on capital employed is most useful for decision making when it is presented
A ratio like return on capital employed is most useful when compared with budget, past periods and industry benchmarks. Such comparison shows trends and relative performance, whereas a standalone figure gives managers no basis to judge whether results are satisfactory.
- Aas a single figure without any reference point
- Bwith comparison to budget, past periods and industry benchmarksCorrect
- Conly in absolute rupee terms
- Donly for the closing date of the financial year
Explanation
A ratio has meaning only relative to a standard. Comparing with budget, earlier periods and industry benchmarks shows trend and relative performance. An isolated figure or absolute rupee amount gives no basis for judging whether performance is good or poor.
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