Why Should Management do Financial Benchmarking?

Why should you do financial benchmarking and how can the Printing Industries of America’s Dynamic Ratios Reports help your company achieve greater profitability?

Ratio analysis is a simple common-sense operation. Ratio analysis of financial statements is critical to the management of any company, especially graphic arts companies and other manufacturing firms. It allows management to evaluate company operations, and by the use of these ratio studies, compare their firm to industry standards.

Management has much to gain by using the Dynamic Ratios studies. Management's job is to continuously monitor the state of their company. Although no single ratio by itself is enough to change management policies or operating procedures, analysis and comparison to other financial indicators may point to deviations from management's goals or expectations.

Others may be interested in the Dynamic Ratios studies. Bankers may want to compare their customers to industry standards. Economists may look at the studies for profit or growth trends. Industry leaders and spokespersons may see operating trends of interest to industry groups. Accountants can use the Dynamic Ratios to do the analytical review required in the preparation of financial statements. Vendors who supply the industry with goods and services can judge markets and opportunities available to their companies.

Anyone who is remotely connected to the graphic arts industry can use some part of the Printing Industries of America Dynamic Ratios studies. After all, the Dynamic Ratios studies are the standard guideline by which managers can evaluate their company's operations in comparison to other companies in the graphic arts industry.

The objective of the manager is to make good, reasoned business decisions; the goal is to increase the company's profit. Analysis of a firm's financial ratios is a vital management tool that gives management the ability to understand their company. It gives management the opportunity to learn more about the company's past, present, and projected future operations. Comparing your financial ratios to industry profit leaders can add even greater insight.

There are different types of ratio analyses. The following is a brief description of these types of analysis: 

  1. Trend Analysis
    This method examines the change in a firm's ratios over a period of time. The purpose would be to discover any patterns that may suggest problems and allow time for changes to correct the problem.

  2. Industry Comparisons
    This method is the one proposed by the Printing Industries of America Dynamic Ratios studies. It suggests that a company's dynamic ratios be compared to the industry standards, which represent your competition.

  3. Common-Size Analysis
    This method, used in the Dynamic Ratios studies, turns your basis for comparison into a common size. For example, total sales would be set at 100%, and all other items would be calculated and categorized as a percentage of sales. In the Dynamic Ratios studies, we do this with sales, value added, total assets, and other less common items, so we can compare them easily. This conversion from dollars to common-size ratios allows companies to monitor the relationship of the numbers, even when they are constantly changing.

  4. Integrated Analysis
    This method involves an analytical review of ratios. The result of the review is to obtain a complete evaluation of the company's operations and financial position.

Published on Tuesday, January 20, 2009 (updated 04/08/2016)

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