Subject Guide: Ratio Analysis

Subject Guide: Ratio Analysis

Guides to Ratio Analysis

Company Ratios

Industry Ratios

 

GUIDES TO RATIO ANALYSIS

Note: Ratios are composite financial measures that are used as a tool to evaluate company performance. In order to do a ratio analysis of a company we must extract financial data from the company's annual report and compute specific percentages or ratios. We then use these ratios to evaluate the company itself; compare it to other companies; or benchmark its performance against the industry.

Definition of Ratios
RMA, the Risk Management Association, includes a guide to ratios at its Web site.  It groups ratios in five categories: liquidity, coverage, leverage, operating, and specific expense items, and for each of these categories, it offers information on how to compute the relevant ratios and how to interpret these ratios.

Investing for Beginners: Financial Ratios
This Web site, written by Joshua Kennon, is part of the about.com Web directory and covers fifteen of the most commonly used ratios.  In an easy to understand way, Kennon discusses how to analyze a company's ratios and how to recognize when a ratio is a cause for concern.  

Standard & Poor's Industry Surveys
The S&P Surveys cover about 50 industries of interest to U. S. investors. Open the “Industries” tab at the top of the page to select an industry. Each Industry Survey includes sections on how to analyze a company in that industry, how to use ratios, and how to find industry specific performance metrics.  This database is part of S&P NetAdvantage.

 

BOOKS

In addition to books on ratio analysis, books on financial statement analysis often discuss how to use and interpret ratios. To find books in Newman Library, use CUNY+.  First, from the pull down menu, select "subject", and then enter one of the following subjects: 

Ratio Analysis
Financial Statements

Corporations -- Finance
Cash Flow

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COMPANY RATIOS

Note: Many financial publishers and business databases  compute selected ratios for companies. The number and type of ratios, the historical data available, and the format of the data (some are available as spreadsheets)  will vary from source to source. 

KEY SOURCES

Bloomberg
Available in the Subotnick Financial Services Center
Bloomberg provides both quarterly and annual ratios for public companies, including both U.S.  and internationally listed companies. To search for ratios for a particular company, enter the company ticker, the <EQUITY> key, "FA", the function symbol for Financial Analysis, and then the <GO>key.  Bloomberg provides data and graphs of ratios for the last five years.

Factiva
Factiva company profiles include common ratios for publicly traded companies.  Select the “Companies/Markets” tab at the top of the page and enter the company name or ticker in the search box. For comparison of the company to ratios of its industry, sector, and the S&P 500 index, choose “Reports” and then “Ratio Comparison Report.”

Mergent Online
Mergent Online includes up to 30 annual financial ratios in its profiles of U.S. and international companies. Search by company name or ticker and then choose the "Company Financials" tab for a downloadable list of ratios for each of the latest three years. Use the "Create Reports" tab to build reports that compare a company to a list of its peers or calculate historical ratios for a company from 10 years of annual report data. Data in custom reports can be saved as a Word document, in PDF format, or in Excel.

 

SUPPLEMENTAL SOURCES

Business Week Corporate Scoreboard
Late February or early March issue
Each year Business Week surveys the profitability of companies in sixty industry groups.  Price/earnings ratios and ratios measuring the return on equity are computed for all companies in this universe.

Mergent’s Industry Review
Index Table A (and HG4961 .M68)
Twice a year the Industry Review calculates ratios and growth rates for over 6,000 top companies in 137 industry groups. It also ranks companies within their industries based on various financial criteria including return on capital, current ratio, p/e ratio, and return on assets.

S&P Stock Reports
The S&P Stock Reports include the P/E ratio and current ratio for the last 10 years for all U.S. listed companies. Open the “Companies” tab at the top of the page, select the "Publication" Stock Reports, and then select a company.  This database is part of S&P NetAdvantage.

ValueLine Investment Survey
Also in print at Reserve Desk 2nd Floor  HG4501 .V26
Value Line’s  Ratings & Reports features company reports grouped in fifty-six industry sectors. The reports include composite industry statistics and short-term forecasts.  Use “Lookup Industry” for a list of the industry sectors covered. (In the print version use the weekly index found in Part I to identify the pages of the industry reports.)

SEC FILINGS/ANNUAL REPORTS

Note: In calculating company ratios, use  financial data from the balance sheet, income statement and cash flow statement found in the company's annual report or the 10K report filed with the SEC.

EDGAR
The Securities and Exchange Commission (SEC) Web site is the official home of EDGAR, the corporate filings database. Search by company name in “Latest Filings” for recently filed reports or choose the “Historical EDGAR Archives” for reports filed since 1993.  Reports include all exhibits and are downloadable.

Lexis/Nexis
LexisNexis offers a collection of SEC filings and the ability to search the text of these filings. From the list of Academic Search Forms (at the far left of the search screen) choose "Business" and then "SEC Filings and Reports."  Search for reports by ticker or company name and add free text terms to your company search.

Thomson Research
This database of SEC filings and annual reports covers both U.S. and international companies.  Current EDGAR filings are available as well as reports dating back, in some cases,  to 1968.  There are various options for viewing reports including selecting parts of the reports from a table of contents or downloading financials to a spreadsheet.


Compustat North America
Compustat  provides financial data for more than 13,000 companies in eighty countries including all U.S. public companies.  It contains twenty years of annual and quarterly balance sheets, income statements, and cash flow statements that can be used to generate ratio reports.  

Annual Reports - Fortune 500 Companies
Display Shelves 3rd Floor
The Newman Library collects the latest annual reports from U.S.-based Fortune 500 companies.

Company Websites
Many companies include their annual report to the shareholders and current SEC filings on their Websites. These are usually found in the section called "Investor Relations," "Financial Information," or "About Us".

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INDUSTRY RATIOS

Note: Industry ratios are an aggregate measure of industry performance. Publishers gather data from the financial statements of hundreds of firms to calculate industry averages. Often they break out the results into categories based on the asset size of the companies.  These are then used as a benchmarking tool  in comparing a company's performance to that of  its industry. 

KEY SOURCES

Industry Norms and Key Business Ratios
Reference 2nd Floor  HF5681 .R25I53
Dun & Bradstreet publishes financial ratios for over 800 lines of business as defined by SIC industry classes. It includes comparison data for the industry measured at the median, and upper and lower quartiles. 

RMA Annual Statement Studies
Reference 2nd Floor  HF5681 .B2R6
RMA provides data for sixteen common ratios along with balance sheet and income statements for about 350 industries and over 600 lines of business.  Three years of historical ratios are provided. Data for the latest year is broken out into six groups of sales ranges for companies earning under one million to those earning over twenty-five million. 

SUPPLEMENTAL SOURCES

Almanac of Business and Industrial Financial Ratios
Reference 2nd Floor HF5681 .R25T68
The Almanac, complied by Professor Leo Troy of Rutgers University, provides selected ratios for 192 industries based on their NAICS classification codes. Ratios are given for the industry as a whole and broken out for companies in thirteen different asset size ranges. Ratios are calculated from tax returns filed with the IRS.  

QFR: Quarterly Financial Report for Manufacturing Mining and Trade Corporations
Periodicals 3rd Floor (1975-1994 only)
The U.S. Bureau of the Census provides quarterly estimates of industry balance sheets and income statements as well as selected financial and operating ratios.  The reports cover only thirty-four, primarily manufacturing, industries. Data  is grouped by industry and asset size.  

Standard & Poor's Analysts' Handbook
Reference 2nd Floor  HG4905 .A66
Standard & Poor's calculates ratios for the S&P 500 index and its sub-indices whose industries are defined using GICS, the Global Industry Classification Standard.  Ratio data is given for each of the last ten years.

Standard & Poor's Industry Surveys
The S&P Surveys cover about 50 industries of interest to U. S. investors. Open the “Industries” tab at the top of the page to select an industry. Each survey includes a "Comparable Company Analysis" section with five years of ratios for a selection of companies in the industry. This database is part of S&P NetAdvantage.

INDUSTRY CLASSIFICATION

Note: In order to use industry ratios, you must define your industry using the  North American Industry Classification system (NAICS). NAICS (pronounced "nakes") codes are used by publishers to organize and present industry data. All of the sources of industry ratios listed above use NAICS (or in their older editions, its predecessor,  the SIC codes).

North American Industry Classification System: United States, 2002
Reference 2nd Floor HF1042 .N6 2002  (and copy at the Reference Desk 2nd Floor)
NAICS, the North American Industry Classification System, is a common system used by the U.S., Canada, and Mexico to classify establishments based on similar processes or means of production. Codes are assigned using a two to six digit level of detail, from broad sectors like manufacturing and retail (2-digit codes) to individual industries (6-digit codes). Search the NAICS directory on the Web by keyword for industry codes.  The directory provides lengthy industry definitions and a correspondence table for converting SIC codes to NAICS.

Standard Industrial Classification Manual
Reference 2nd Floor  HF1042 .A55 
SIC codes are four digit numbers representing a particular industry or line of business. The SIC Manual, last revised in 1987, outlines the industry hierarchy and offers definitions of each industry.  With the adoption of NAFTA, the SIC system was replaced with the more detailed NAICS system, although as of 2004, some government agencies, publishers and data providers have not yet made the changeover to NAICS.

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Louise Klusek
created June 22, 2004

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