Benefits or Advantages of Inter Firm or Intra Firm comparison
Inter firm comparison has brings same benefits to every business unit. They are presented below:
1. The management can pay special attention on the weakness area of business to take suitable action.
2. Uniform information is available to all participating companies of inter firm comparison.
3. An analyst has expert knowledge and experience in interpreting the results of inter firm comparison. Hence, every company gets very valuable information.
4. The results are obtained only on the basis of accurate data collected by the analyst.
Disadvantages or Limitation of Inter Firm or Intra Firm comparison
The followings are some of the limitations of the inter-firm or intra firm comparison.
1. The success of inter-firm comparison or intra firm comparison is fully based on the co-operation of participation companies or departments. The degree of co-operation is responsible for degree of success.
2. Some accounting data are confidential in nature. Such data are not available to the analyst for proper inter-firm comparison. If so, no benefit is available through inter firm comparison.
3. Misuse of ratios may lead to misleading results.
4. Fruitful results cannot be obtained if the companies are not of the same size and character.
5. There is no use of inter firm comparison when different forms of business organization are compared.
6. Accounting procedures and policies followed by participating companies may not be uniform and as such accounting ratios used for comparison may not give proper results.
7. Every ratio has its own limitations. These are applicable to inter firm comparison also.