What does peer group analysis involve?

Peer group analysis is a critical tool used in financial analysis, particularly when assessing a company's performance in relation to its industry. This method involves comparing a company's financial metrics, such as revenue growth, profit margins, return on equity, and other key performance indicators, against those of similar companies within the same industry or sector.

The rationale behind this approach is to establish a benchmark or standard, allowing analysts and investors to gauge how well a company is performing relative to its direct competitors. By doing so, one can identify strengths and weaknesses in a company's operations and strategy, leading to more informed investment decisions.

This practice not only helps in understanding where a company stands in the competitive landscape but also provides insights into industry norms and expectations which can guide strategic planning and operational adjustments. The other options do not align with the core definition of peer group analysis. Comparing metrics against government standards, examining market trends, or evaluating global factors are important analyses but do not focus specifically on the relative performance among similar companies.