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Ratio AnalysisIn assessing the significance of various industry financial data, experts engage in ratio analysis or the process of determining and evaluating financial ratios. A ratio analysis shows the relationship that indicates something about an industry's activities, such as the ratio between the industry's current assets and current liabilities, or between its accounts receivable and its annual sales.The basic sources for ratio analysis are the company financial statements within the industry that contain figures on assets, liabilities, profits, and losses. Ratio analysis is only meaningful when compared with other information. Since individual companies are most often compared with industry data, ratio analysis helps an individual understand a company's performance relative to that of competitors and are often used to trace performance over time. Ratio analysis can reveal much about an industry. However, there are several points to keep in mind about ratios. First, financial ratios are "flags" indicating areas of strength or weakness. One or even several ratios might be misleading, but when combined with other knowledge of an industry, ratio analysis can tell much about that industry. Second, there is no single correct value for a ratio. The observation that the value of a particular ratio is too high, too low, or just right, depends on the perspective of the analyst performing the ratio analysis. Third, a ratio is meaningful only when it is compared with some standard, such as another industry trend or a ratio trend for the specific industry being analyzed in the ratio analysis. In trend analysis, industry ratios are compared over time, typically years. Year-to-year comparisons in the ratio analysis can highlight trends and point up the need for action. Trend analysis works best with five years of ratios. The second type of ratio analysis (cross-sectional analysis) compares a company's ratios to industry ratio averages. Another popular form of cross-sectional analysis compares the financial ratios of two or more companies in similar lines of business. To properly judge how well a company or investment is performing, it is imperative that the company or investment be compared to the performance of the industry in which it competes. The industry ratio analysis performed should provide the latest data, usually less than 30 days old, for every industry within the public markets. Company to industry ratio analysis can be broken down into the various ratio categories:
Web Equity Manager® calculates a complete financial analysis on any loan type, from the simplest loan requests to the most complex agricultural and related small business credits utilizing the Farm Financial Standards Ratios and RMA Industry Comparisons. Credit bureau reports can be pulled from within the Web Equity Manager® system and lenders can include that information in their scoring and rating parameters. Web Equity Manager® also provides the Fair, Isaac LiquidCredit® analytic and decisioning service for small business lending, including the industry-leading Small Business Scoring ModelsSM (SBSSSM) functionality so lenders can quickly and confidently process loans up to $250,000 with little or no financial data. Click on the link below (or call ECI) to schedule a live online demonstration of Web Equity Manager® financial analysis capabilities today. 1-800-264-0787 ext. 200 | ECI Home Page Here ©
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