RMA Industry Comparisons
RMA Industry Comparisons are a unique collection of comparative financial data derived from more than 150,000 financial statements of small and medium-sized businesses, provided to commercial banks from borrowers and prospects. RMA compiles the data from financial statements collected by their member institutions. RMA Industry Comparisons at a glance:
- Fresh and up-to-date.
- Sixteen clearly defined "classic" financial statement ratios.
- Six balance sheet and income statement line items are presented in common size format.
- Six different assets and sales size categories are presented to ensure an excellent match for the target entity.
- More than 600 industries are represented at the four-digit SIC level.
RMA Industry Comparisons can be used in financial analysis of loan borrowers, valuation reports, business plans, comparative reports, or consultative engagement documents prepared for the benefit of a client. Below is a description of how RMA Industry Comparisons compare the data between individual entities and the industry.
The RMA Industry Comparisons Statement Study includes a series of ratios that have been computed from the financial statement data below the common size balance sheet and income statement presented on each data page. Each ratio has three values: the upper, median, and lower quartiles. For any given ratio, these figures are calculated by first computing the value of the ratio for each financial statement in the sample. These values are then arrayed—"listed"—in an order from the strongest to the weakest. (We acknowledge that, for certain ratios, there may be differences of opinion concerning what is a strong or a weak value. RMA Industry Comparisons has resolved this problem by following general banking guidelines consistent with sound credit practice in its presentation of data.)
The RMA Industry Comparisons array of values are then divided into four groups of equal size. The three points that divide the array are called quartiles—the upper quartile, the second quartile (or median), and the lower quartile. The upper quartile is that point at which ¼ of the array of ratios fall between the strongest ratio and the upper quartile point. The median is the middle value, and the lower quartile is that point at which ¾ of the array fall between the strongest ratio and the lower quartile point.
There are several reasons for using RMA Industry Comparisons medians and quartiles instead of an average. One is to eliminate the influence that values in an "unusual" statement would have on an average. The method used more accurately reflects the ranges of ratio values than would a straight averaging method.
It is important to understand that the RMA Industry Comparisons spread (range) between the upper and lower quartiles represents the middle 50% of all the companies in a sample. Ratio values greater than the upper quartile or less than the lower quartile therefore begin to approach "unusual" values.
For some RMA Industry Comparisons ratio values, you will occasionally see an entry that is other than a conventional number. These unusual entries are defined as follows:
- UND—This stands for "undefined," the result of the denominator in a ratio calculation approaching zero.
- NM—This may occasionally appear as a quartile or median for the ratios sales/working capital, debt/worth, and fixed/worth. It stands for "no meaning" in cases where the dispersion is so small that any interpretation is meaningless.
- 999.8—When a ratio value equals 1,000 or more, it also becomes an "unusual" value and is given the "999.8" designation. This is considered to be a close enough approximation to the actual unusually large value.
- -.0—In a few places in the RMA Industry Comparisons, we encounter a negative value so minute that, when rounded, it becomes zero. We have used the symbol "-.0" to reflect this, but it is important to recognize that it is the result of rounding a negative number.
Throughout the RMA Industry Comparisons Statement Study, the ratio values have been omitted whenever there were fewer than 10 statements in a sample. Occasionally, the number of statements used in a ratio array will differ from the number of statements in a sample because certain elements of data may not be present in all financial statements. In these cases, the number of statements used is shown in parentheses to the left of the array.
In interpreting RMA Industry Comparisons ratios, the "strongest" or "best" value is not always the largest numerical value, nor is the "weakest" always the lowest numerical value. The following description of each of the ratios appearing in the Statement Studies will provide details regarding the arraying of the values.
The ratios in the RMA Industry Comparisons Statement Study are grouped into five principal categories: liquidity, coverage, leverage, operating, and specific expense items.
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About RMA Industry Comparisons
The information provided here is from the Risk Management Association web site. You can learn more about this resource by clicking here.
Source: RMA Industry Comparisons
