Financial analysis using business or financial ratios and norms provides a means of assessing a firm's strengths and weaknesses. Using data from the balance sheet and income statement, various ratios can be calculated, which can then be compared directly to those of competing firms of varying sizes. Comparing the firm's operating results with those of specific competitors or the industry as a whole helps identify relative strengths and weaknesses. In addition, comparing changes in a firm's ratios over time can highlight improvements in performance or problem areas needing attention.
To perform ratio analysis:
- Obtain the balance sheet and income statement of the firm, using sources listed in Company Information, and calculate the ratios;
- Compare the ratios to those of specific competitors (obtain their information from the same sources); or
- Compare the firms ratios to industry norms or averages from the sources below.
- For assistance in calculating and using the ratios consult a guide listed below.
Printed Sources
Most of these printed sources are published annually.
Advertising Ratios & Budgets by Schonfeld & Associates, Inc. (Reference HF 5801 .A34 1991/1998)
Provides advertising-to-sales and advertising-to-gross margin ratios for 5850 companies and compares the company's ad-to-sales ratio to the industry's ratio. Data is arranged by SIC code, company name, and budget size. Use to monitor the competition and set advertising budgets.
Almanac of Business and Industrial Financial Ratios (Desk Reference HF 5681 .R25 T68)
Lists 24 key financial ratios for 180 industries based on IRS data.
Business Profitability Data (Reference HD 2346 .U5 B88 1990)
Covers 294 types of small business, listing source and use of capital, sales and income, profitability versus assets, profitability trend and risks; arranged by type of business. Old, but still useful.
Industry Norms and Key Business Ratios by Dun and Bradstreet. (Desk Reference HF 5681 .B2 I52)
Covers over 800 lines of business, arranged by SIC code. Presents "typical" balance sheets and income statements for the industry and 14 key ratios for the median, upper, and lower quartiles.
RMA Annual Statement Studies (Desk Reference HF 5681 .B2 R401)
Gives current and historical data for 370 industry groups collected from annual financial statements of firms. Data is presented by size of firm in assets and in sales. Lists sources for additional data.
Electronic Sources
Free Industry Statistics and Financial Ratios
BizStats.com provides information about ratios and benchmarks and statistics for various manufacturing and service industries.
MSN Money - Company Key Financial Ratios
MSN Money provides company and industry ratios; search by company name or ticker symbol.
For explanations of the ratios and help in using them to analyze a company's performance, consult the following:
Printed Sources - in the Reference area:
Analyzing Ratios (Reference HF 5681 .R25 V57 1983)
Explanation of over 35 frequently used business ratios and their use in financial analysis.
Handbook of Business and Financial Ratios (Reference HF 5681 .R25 T97 1986)
Explains frequently used business ratios; aids in assessing and interpreting financial data.
How to Read a Financial Report (Reference HF 5681 .B2 T733 1994)
How to Use Financial Statements (Reference HF 5681 .B2 B285 1994)
Printed Sources - Books you can check out:
101 Business Ratios by Sheldon Gates. (HC 79 .C7 G37 1993)
Business Ratios and Formulas: A Comprehensive Guide by Steven M. Bragg. (HF 5691 .B73 2007)
The Essentials of Management Ratios by Philip Ramsden. (HF 5681 .R25 R36 1998)
Financial Analysis by Erich A. Helfert. (HG 4026 .H436 2001)
Financial Statement Analysis: A Practitioner's Guide by Martin S. Fridson. (HF 5681 .B2 F77 1995)
Techniques of Financial Analysis by Erich A. Helfert. (HG 4026 .H44 2000)
Winning Business: How to Use Financial Analysis and Benchmarks to Outscore Your Competition by Rich Gildersleeve. (HF 5681 .R25 G55 1999)
Find additional books by searching in the Milner catalog under the subject words: ratio analysis
Electronic Sources
Biz/ed - Financial Ratio Analysis
An online tutorial, with activities and questions, to build proficiency in financial analysis using ratios.
CCH Business Owner's Toolkit - Business Ratios
Provides explanations of liquidity, efficiency, profitability, and solvency ratios.
Financial Ratio Tutorial
A tutorial from Investopedia.
RMA Annual Statement Studies - Definition of Ratios
Provides definitions and explanations included in the printed version of the Annual Statement Studies.
Small Business Ratio Calculators
Bankrate.com provides a brief introduction to ratio analysis as well as calculators for the most common ratios.
Take Your Fiscal Temperature with Financial Ratios
A tutorial from American Express.
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