Upload
naveen4950
View
212
Download
0
Embed Size (px)
Citation preview
7/30/2019 Fin Rat Over
1/2
Financial Ratios: Industry Norms and Company Specific
Overview
Mathematical relationship between 2 quantities.
Ratio for 600 to 300 is 2:1, 2 to 1, or 2.
Use to compare companys performance with industry norms.
Show relationship between 2 financial terms from Balance Sheet,
Income Statement,
Example for a Solvency Ratio
Ratios can be categorized such as ratios for Solvency, Profitability,Efficiency,
Example for Currency Ratio which is a Solvency ratio:o Current Ratio = current assets/current liabilities
o Predicts short term cash problems.
Use to Evaluate Companys Financial Situation
Students can compare a companys ratios to industry ratios (norms) forcompanys primary SIC/NAICS.
Look Up Industry Ratios Using Industry SIC or NAICS:
D&B Financial Ratios : Industry Norms & Key Business Ratios (Arrangedby SICs)Ref Reserve HF5681 R25 I52x (3 most current years) Circulation Desk,Folsom Library; Earlier editions on the 3rd floor, Folsom Library.
RMA Annual Statement Studies (Arranged by NAICS)Ref Reserve HF 5681 B2 R6x (3 most current years) Circulation Desk,Folsom Library; Earlier editions on the 3rd floor, Folsom Library.
Locate Ratios for a Specific Companys Primary Industry (PrimarySIC/NAICS)
Go to http://library.rpi.edu Click articles/journals tab at top. Click onM.
Click on Mergent Online. Click on mergent online button. Click onTicker radio button. Enter companys Ticker Symbol. Click on Searchbutton. View entry for your company.
Note primary SIC/NAICS in left frame. Click on Company Financials tabat top. Click Ratios link.
Calculate a Company Ratio When Cant Locate Specific Ratio
Locate Formula for Ratio
See Preface of either RMA Annual Statement Studies and/orD&B Financial Ratios .
Locate the formula for the ratio in question.
Locate Financial Item(s) in Consolidated Financials Needed forCalculation
http://library.rpi.edu/http://library.rpi.edu/7/30/2019 Fin Rat Over
2/2
Financial Ratios: Industry Norms and Company Specific
Go to http://library.rpi.edu Click articles/journals tab at top. Clickon M.
Click on Mergent. Click on mergent online button.
Click on EDGAR SEARCH tab at top.
Click on Ticker radio button and enter companys Ticker Symbol.
From Filing Date Search section, select radio button for Last 12Months. From the Filing Type pull down menu, select 10-K. Clickon Search button.
View document 10-K, Part II, Item 8.Quartiles
Arrange ratios in numeric order from weakest to strongest.
Divide ratios into 4 roughly, equally sized groups.
Upper Quartile (group with strongest ratios)
Lower Quartile (group with weakest ratios)
Largest ratio value not always the strongest; Depends on ratio.
Range between upper and lower quartiles represents middle 50 % of
all companies in sample.
Median
Industry ratio thats smack dab in the middle of the ratio line up.
If you had odd number of ratios such as 19, median is the 10th ratio inline up.
If you have even number of ratios such as 20, median is average of 10and 11th ratios.
Why Use Quartiles and Medians? Handles outliers.
Accounts for range of ratios in group.
More accurate than average for group of ratios.
For more on financial ratios, go to: http://library.rpi.edu/update.do?artcenterkey=458.
C.O Holmes 10/4/2009
http://library.rpi.edu/http://library.rpi.edu/update.do?artcenterkey=458http://library.rpi.edu/update.do?artcenterkey=458http://library.rpi.edu/http://library.rpi.edu/update.do?artcenterkey=458http://library.rpi.edu/update.do?artcenterkey=458