1. In ratio analysis, an individual organization is usually compared to an appropriate industry average. How can one tell if the entire industry is doing poorly or well?
2. In deciding to continue (or discontinue) a service whose revenue do not cover total cost, which is more important in the short run, variable cost or fixed cost? In the long run? Why?
3. Can anyone actually hold the market portfolio? Explain.
1. There are various methods to understand whether the industry is doing well or poor. The first method is to compare the progress of the industry with respect to the economy. Although this method is not vey robust it gives some indications on how the industry is doing vis-a-cis entire economy. Second and more effective method is to compare the industry's profitability and returns with the other industries and compare how well it placed as compared to the other industries. Whether it lies at the top of the table, bottom or middle. Third, different industries have different growth rates and life, so we need to compare like industries. For ...
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