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==== Industry comparisons ==== |
==== Industry comparisons ==== |
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A tool which facilitates understanding of a organization towards its position compare to other companies within the same industrial sector to evaluate threats and opportunities for business owners.<ref>{{Cite web|url=https://smallbusiness.chron.com/definition-industry-analysis-830.html|title=Definition of Industry Analysis|website=smallbusiness.chron.com|language=en|access-date=2019-05-31}}</ref> The process is to compare the performance of business to other business within the same industrial sector, it’s important to compare within the industry because it gives a general standard to determine Company’s position within the industry. Whereas the main competitors for a business are those within the same sector, offers the same type of products or services.<ref name=":3">{{Cite web|url=http://www.industriuscfo.com/understanding-financial-ratios-and-industry-average-ratios/|title=Industry Average Financial Ratios {{!}} Average Industry Ratios|date=2016-02-26|website=IndustriusCFO|language=en-US|access-date=2019-05-12}}</ref> |
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Other than Financial ratios, industry averages also related to most of the terms in industrial sector. Industry averages salaries stand for general level of wages for individuals classified by different industries. It is a tool for comparisons purposes, individuals understand their position within the industry through the averages thus can negotiate with their leaders for wage increase. For job seekers it helps them decide their favorable range of salaries thus can discuss during the job interview. <br />For business which wants to hire someone, it provides information for the interviewer thus they can determine whether the job seeker’s level of worthiness to be paid. |
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== Source of data == |
== Source of data == |
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There are various of ratios can be used for analysis depending on the objective of the analysis and nature relationship between figures. For more detailed information related to the ratios below please see [[Financial ratio|Financial Ratios]]. Mainly there are five general classes of ratios used for financial analysis<ref name=":2" /> |
There are various of ratios can be used for analysis depending on the objective of the analysis and nature relationship between figures. For more detailed information related to the ratios below please see [[Financial ratio|Financial Ratios]]. Mainly there are five general classes of ratios used for financial analysis<ref name=":2" /> |
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=== Industry Averages Financial Ratio === |
=== Industry Averages Financial Ratio <ref name=":3" />=== |
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==== Liquidity Ratios ==== |
==== Liquidity Ratios ==== |
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All the ratios listed above can be written as industry averages (something) such as industry averages profitability ratio, represents for the average figures of profitability ratio for a certain industry. Through compare those ratios of a business with the industry averages could obtain its position within the industry. Data can be obtained through website or through a survey or census. However for individual users they usually obtain data from internet because survey requires a huge amount of work which can be hard to achieve for individual. There are some free basic data information of some industry, but for more detailed analysis report, individuals or organizations needs to purchase for it due to the convenience to obtain information through websites.<ref name=":4">{{Cite web|url=https://libguides.library.ohio.edu/business/industry/industry-financial-ratios|title=Subject & Course Guides: Industry Research Basics: Industry Financial Ratios|last=Boeninger|first=Chad|website=libguides.library.ohio.edu|language=en|access-date=2019-05-12}}</ref> |
All the ratios listed above can be written as industry averages (something) such as industry averages profitability ratio, represents for the average figures of profitability ratio for a certain industry.<ref>{{Cite web|url=https://bizfluent.com/how-7728403-compare-financial-ratios-industry-average.html|title=How to Compare Financial Ratios to Industry Average|website=Bizfluent|language=en|access-date=2019-05-31}}</ref> Through compare those ratios of a business with the industry averages could obtain its position within the industry. Data can be obtained through website or through a survey or census. However for individual users they usually obtain data from internet because survey requires a huge amount of work which can be hard to achieve for individual. There are some free basic data information of some industry, but for more detailed analysis report, individuals or organizations needs to purchase for it due to the convenience to obtain information through websites.<ref name=":4">{{Cite web|url=https://libguides.library.ohio.edu/business/industry/industry-financial-ratios|title=Subject & Course Guides: Industry Research Basics: Industry Financial Ratios|last=Boeninger|first=Chad|website=libguides.library.ohio.edu|language=en|access-date=2019-05-12}}</ref> |
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=== Tools for Larger Industries & Companies '''<ref name=":4" />'''=== |
=== Tools for Larger Industries & Companies '''<ref name=":4" />'''=== |
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A good source of company profiles, analytic reports and financial information, news etc. |
A good source of company profiles, analytic reports and financial information, news etc. |
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*[https://www.dowjones.com/products/factiva/ Factiva] |
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*[[Factiva]] |
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Contains a great range of articles related to company, topic, industry and so on, extremely powerful database offers full text access but using can be complicated. |
Contains a great range of articles related to company, topic, industry and so on, extremely powerful database offers full text access but using can be complicated. |
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The potential problem of using industry averages as a benchmark occurs when selecting the proper type of information from a variation of data. When business compare its performance with industry averages, it only compare itself with the middle range. Business with more potential power should not be satisfied by achieving the industry averages cause it’s only better than 50% of the whole industry. In stead, they should benchmarking themself with the leaders of the industry to set higher targets for the company and aim for more growth with better performance. For those firms with their figure below the industry averages, might have several weak spots within it, managers should start acting to change the situation, cause its not even better than half of the industry. However, attitude towards industry averages vary due to different situations and status of the business, it affected by some factors, such as size of the business. Thus managers and decision makers should consider more than just statistic <ref>{{Cite web|url=https://www.thebalancesmb.com/limitations-of-financial-ratio-analysis-393236|title=Learn the Advantages and Disadvantages of Ratio Analysis for Business|last=Peavler|first=Rosemary|website=The Balance Small Business|language=en|access-date=2019-05-12}}</ref> Study suggests<ref name=":2" /> that there are dramatic differences between small private and large public business’s industry average ratios. Those differences appeared for every leverage ratios and mostly for activity, profitability ratios. For liquidity ratios there are no signs of difference, also some profitability ratios with various of expense ratios. Users needs to determine an appropriate industry average ratio when used for comparisons with their own data. <ref name=":2" /> |
The potential problem of using industry averages as a benchmark occurs when selecting the proper type of information from a variation of data. When business compare its performance with industry averages, it only compare itself with the middle range. Business with more potential power should not be satisfied by achieving the industry averages cause it’s only better than 50% of the whole industry. In stead, they should benchmarking themself with the leaders of the industry to set higher targets for the company and aim for more growth with better performance. For those firms with their figure below the industry averages, might have several weak spots within it, managers should start acting to change the situation, cause its not even better than half of the industry. However, attitude towards industry averages vary due to different situations and status of the business, it affected by some factors, such as size of the business. Thus managers and decision makers should consider more than just statistic <ref>{{Cite web|url=https://www.thebalancesmb.com/limitations-of-financial-ratio-analysis-393236|title=Learn the Advantages and Disadvantages of Ratio Analysis for Business|last=Peavler|first=Rosemary|website=The Balance Small Business|language=en|access-date=2019-05-12}}</ref> Study suggests<ref name=":2" /> that there are dramatic differences between small private and large public business’s industry average ratios. Those differences appeared for every leverage ratios and mostly for activity, profitability ratios. For liquidity ratios there are no signs of difference, also some profitability ratios with various of expense ratios. Users needs to determine an appropriate industry average ratio when used for comparisons with their own data. <ref name=":2" /> |
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Another potential problem for industry averages is the accuracy of the data used by individuals and organizations. Information obtained by users of industry averages can come from several different paths, usually from internet. There is possible error occurs for data due to human error which sometimes can be unavoidable. However for those organizations websites, they will have person responsible towards checking the data’s accuracy and updates data presented to the users. |
Another potential problem for industry averages is the accuracy of the data used by individuals and organizations. Information obtained by users of industry averages can come from several different paths, usually from internet. There is possible error occurs for data due to human error which sometimes can be unavoidable. However for those organizations websites, they will have person responsible towards checking the data’s accuracy and updates data presented to the users. Individuals and organizations can use data from bigger organizations websites because it’s more reliable, thus can reduce the chance of this type of problem. |
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Revision as of 00:57, 31 May 2019
Testing draft page
This is a testing place for the article writing in purpose of completing the project.
Industry averages
Industry averages (of financial ratios) are benchmarks or tools which helps business to make comparisons in order to determine its position within the industry, thus evaluate financial performance of the business[1]. It’s a useful tool for business managers and investors, helps with decision making process. It including data figures taken from organizations across different industry which producing distinct products and services. For both individuals and organizations, industry averages can be useful tools, given them a middle standard for them to compares and make decisions. Investors compare a organization’s financial ratios to industry averages to see whether this organization have potential power to increase its profitability. Then decided whether to make investment. The source of data can be collecting through survey or obtain through several statistic websites.[2] Industry averages could also refer to terms related to industrial sector such as industry averages salaries, unemployment rates, Clickthrough rates and so on, using as benchmarks for comparisons.
Definition & Evaluation of use
Industry can be define as a type of business and activities involved in process of producing products for sale[3]. The classification of industry usually follows the International Standard Industrial Classification(ISIC), or certain standard according to different countries or states.[4] Averages represents a standard or level which can be considered to be typical or usual.[5] To combine those two gives a term called industry averages. Industry averages ratios are summarized measure of company’s financial performance, in form of collection of data, usually financial ratio from a various type of business that offers different products and services. Publishers collect data from financial statements of a great range of firms to obtain industry averages. The results will be break out into different categories based on the size of the assets of the organization. Data generated are then used as a benchmarking tool in comparing financial performance of a company within the industry. A primary reason for benchmarking the business against its industry averages due to obvious variations of financial ratios across different industries.[1]
It is likely to be confused with difference between industry averages and financial ratios. Financial ratio is a relative figures of two numbers taken from business financial statements, often used in accounting for financial statement analysis purposes.[6] When evaluating the financial & historical performance of a business, financial ratio is used against industry averages.[2]Financial Ratio analysis make comparisons among items within the financial statement, shows their relationship between on another.( A ratio is a relationship between two numbers, often expressed as ‘x to y’ or ‘x : y’.) it was widely used by academics, financial analytics, investor and small business managers. Usually used to recognize possible business failure and forecasting unstable factors. Generally, there are two type of ratios comparisons, trend analysis & industry comparisons.[7]
Trend analysis
It is a technical analysis based on historical data to estimate the trend of the data thus forecasting for its futures. [8]Comparing financial ratios over periods of time to determine financial performance of the business. Comparing current with past figures to examine the trending, whether it’s getting better or deteriorating over time. The main purpose is to maximizing firms potential profit and achieve better performance within the industry, compare to its competitors.
Industry comparisons
A tool which facilitates understanding of a organization towards its position compare to other companies within the same industrial sector to evaluate threats and opportunities for business owners.[9] The process is to compare the performance of business to other business within the same industrial sector, it’s important to compare within the industry because it gives a general standard to determine Company’s position within the industry. Whereas the main competitors for a business are those within the same sector, offers the same type of products or services.[10]
Other than Financial ratios, industry averages also related to most of the terms in industrial sector. Industry averages salaries stand for general level of wages for individuals classified by different industries. It is a tool for comparisons purposes, individuals understand their position within the industry through the averages thus can negotiate with their leaders for wage increase. For job seekers it helps them decide their favorable range of salaries thus can discuss during the job interview.
For business which wants to hire someone, it provides information for the interviewer thus they can determine whether the job seeker’s level of worthiness to be paid.
Source of data
There are various of ratios can be used for analysis depending on the objective of the analysis and nature relationship between figures. For more detailed information related to the ratios below please see Financial Ratios. Mainly there are five general classes of ratios used for financial analysis[7]
Industry Averages Financial Ratio [10]
Liquidity Ratios
Ability of a company to meet its short term obligations measures the speed that company can turn its Assets into cash to meet short term debt.
Activity Ratios
Measures the speed of a certain account can turn into sales/cash.
Leverage Ratios
Examines Company’s solvency which means its ability to meet long term obligations by the time of its deadline.
Profitability Ratios
Measures the ability of a company in generating income relative to its Assets, OE and Sales.
Market Value Ratios
The group of ratios mainly focusing on the relationship between firm's stock price towards its earning per share.[10]
| Liquidity Ratios | Quick ratio(QR) Current ratio(CR) |
|---|---|
| Activity Ratios | Asset Turnover (ATO) Accounts Receivables Turnovers (ART) |
| Leverage Ratios | Long-term Debt Ratio (LTDR) Short-term Debt Ratio (STDR) Total Debt Ratio (TDR) |
| Profitability Ratios | Return on Net Worth (RONW) Return on Assets (ROA) Return on Sales (ROS) |
| Market Value Ratios | Earnings per Share (EPS), Dividend ratio, Price/Earnings (P/E) ratio |
All the ratios listed above can be written as industry averages (something) such as industry averages profitability ratio, represents for the average figures of profitability ratio for a certain industry.[11] Through compare those ratios of a business with the industry averages could obtain its position within the industry. Data can be obtained through website or through a survey or census. However for individual users they usually obtain data from internet because survey requires a huge amount of work which can be hard to achieve for individual. There are some free basic data information of some industry, but for more detailed analysis report, individuals or organizations needs to purchase for it due to the convenience to obtain information through websites.[12]
Tools for Larger Industries & Companies [12]
Contains global company information and data, wide range of financial statement, economic news of U.S. information collect with daily updates.
A good source of company profiles, analytic reports and financial information, news etc.
Contains a great range of articles related to company, topic, industry and so on, extremely powerful database offers full text access but using can be complicated.
Tools for Smaller Industries & Companies [12]
Resource to access industry financial ratios and other research statistics, competitive market analysis etc.
- Key Business Ratios
Provides access to industry benchmarking data, financial ratios for both public and private organizations. Along with industry balance sheet and income statement, organized financial ratios.
Limitations and potential problem
The potential problem of using industry averages as a benchmark occurs when selecting the proper type of information from a variation of data. When business compare its performance with industry averages, it only compare itself with the middle range. Business with more potential power should not be satisfied by achieving the industry averages cause it’s only better than 50% of the whole industry. In stead, they should benchmarking themself with the leaders of the industry to set higher targets for the company and aim for more growth with better performance. For those firms with their figure below the industry averages, might have several weak spots within it, managers should start acting to change the situation, cause its not even better than half of the industry. However, attitude towards industry averages vary due to different situations and status of the business, it affected by some factors, such as size of the business. Thus managers and decision makers should consider more than just statistic [13] Study suggests[7] that there are dramatic differences between small private and large public business’s industry average ratios. Those differences appeared for every leverage ratios and mostly for activity, profitability ratios. For liquidity ratios there are no signs of difference, also some profitability ratios with various of expense ratios. Users needs to determine an appropriate industry average ratio when used for comparisons with their own data. [7]
Another potential problem for industry averages is the accuracy of the data used by individuals and organizations. Information obtained by users of industry averages can come from several different paths, usually from internet. There is possible error occurs for data due to human error which sometimes can be unavoidable. However for those organizations websites, they will have person responsible towards checking the data’s accuracy and updates data presented to the users. Individuals and organizations can use data from bigger organizations websites because it’s more reliable, thus can reduce the chance of this type of problem.
- ^ a b "What Purpose Do Industry Average Financial Ratios Serve?". Reference. Retrieved 2019-05-11.
- ^ a b "How to Find Industry Averages". Startup Biz Hub. Retrieved 2019-05-11.
- ^ "INDUSTRY | meaning in the Cambridge English Dictionary". dictionary.cambridge.org. Retrieved 2019-05-12.
- ^ Statistics, c=AU; o=Commonwealth of Australia; ou=Australian Bureau of. "Australian Bureau of Statistics web site". www.abs.gov.au. Retrieved 2019-05-30.
{{cite web}}: CS1 maint: multiple names: authors list (link) - ^ "AVERAGE | meaning in the Cambridge English Dictionary". dictionary.cambridge.org. Retrieved 2019-05-12.
- ^ "Financial ratio", Wikipedia, 2019-02-05, retrieved 2019-05-12
- ^ a b c d "Signing into eresources, The University of Sydney Library". login.ezproxy1.library.usyd.edu.au. Retrieved 2019-04-13.
- ^ "Trend Analysis - Full Explanation & Example | InvestingAnswers". investinganswers.com. Retrieved 2019-05-31.
- ^ "Definition of Industry Analysis". smallbusiness.chron.com. Retrieved 2019-05-31.
- ^ a b c "Industry Average Financial Ratios | Average Industry Ratios". IndustriusCFO. 2016-02-26. Retrieved 2019-05-12.
- ^ "How to Compare Financial Ratios to Industry Average". Bizfluent. Retrieved 2019-05-31.
- ^ a b c Boeninger, Chad. "Subject & Course Guides: Industry Research Basics: Industry Financial Ratios". libguides.library.ohio.edu. Retrieved 2019-05-12.
- ^ Peavler, Rosemary. "Learn the Advantages and Disadvantages of Ratio Analysis for Business". The Balance Small Business. Retrieved 2019-05-12.