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Industry standards for financial ratios



Industry standards for financial ratios

There are many established sources listing the industry standards for financial ratios. You can use these to compare your business's operating results with those of competitors, and to identify your business' strengths and weaknesses relative to its industry. While many of these sources are U.S.-based, all provide valuable insight into how well your business is favouring in comparison to industry standards.

Your first source should be your banker who can tell you what ratio values are used by the bank. Consult your local Board of Trade or the local Chamber of Commerce for ratio values specific to your geographical area, or the industry association for ratio values specific to your industry sector.

Statistics Canada maintains a very thorough library of financial statistics relevant to the Canadian economy, including current ratio values for most industry sectors.

Statistics Canada also publishes a three-volume inventory of key financial ratios for all of Canada's major industry groups under the title Financial Performance Indicators for Canadian Business.

Other sources to consider are annuals published by American research companies, widely used by Canadian lending institutions. Most of these are available at university and larger municipal libraries. You can purchase industry standards reports for your business sector by contacting the publishers of these annuals.

Annual Statement Studies is published by Risk Management Association (RMA) (formerly Robert Morris Associates). Banks use this annual as a standard to evaluate businesses applying for financing. RMA provides balance sheet and income statement data, and financial ratios compiled from financial statements of more than 107,000 commercial borrowers, classified into five income brackets in over 400 different industry categories.

Dun and Bradstreet publishes an annual called Industry Norms and Key Business Ratios. It covers over 800 types of businesses arranged by industry categories, presenting "typical" balance sheets, income statements, and 14 key ratios for the median, upper, and lower quartiles for each industry.

Prentice Hall publishes the Almanac of Business and Industrial Financial Ratios. It lists 24 key financial ratios for 180 industries based on data from the Internal Revenue System (IRS) in the United States.