Industry average metrics also referred to as benchmarking, are the standard numbers that describe a company’s performance compared to its peers in the industry. These figures can be used for comparison purposes and may help an organization identify areas where they need to improve their performance.
The four most common industry average metrics are:
- Leverage Ratios: Leverage ratios measure how much debt a company has compared to its assets and equity capital. These ratios help investors determine if a company can withstand financial stress or if it needs to increase its capitalization or pay down debt to remain safe from bankruptcy.
- Liquidity Ratios: Such as current and quick ratios. The current ratio measures the ability of a company to pay its short-term debts from its short-term resources. You should adjust this figure by deducting inventory from total current assets if you have a large inventory.
- Profitability Ratios: Profitability ratios are used to evaluate a company’s profitability. They are also called “efficiency” or “performance” ratios because they measure how well a company is doing concerning its costs. Profitability ratios can help predict future performance and provide insight into how profitable a business will be. These ratios are often used when comparing two or more firms to determine which one is more successful.
- Market Value Ratios: Market value ratios measure how a company’s market capitalization compares to its book value or net worth. They also indicate whether a company is overvalued or undervalued compared to its peers.
The Risk Management Association (RMA) publishes annual statement studies that provide average ratios for different industries. The RMA is a professional association for the insurance industry so it may be biased toward higher ratios. However, it does have the industry’s best interests in mind.
The following example shows how to use the RMA’s annual statement studies to calculate your risk score:
- Step 1: Find your industry’s average return on equity (ROE) and average debt-to-equity ratio in the RMA’s annual statement studies.
- Step 2: Calculate your own ROE and debt-to-equity ratio by dividing your net income by its total assets, then multiplying by 100%. For example, if your company earned $10 million last year on $100 million in assets, your ROE would be 10% ($10 million/$100 million). Your debt-to-equity ratio would be 1/3 ($100 million/$300 million).
- Step 3: Compare your company’s ROE and debt-to-equity ratio to other companies in its industry. If they’re within 10% of each other or reasonably close, then there’s no need to worry about risk levels.
These pages offer insight into the design and web industries, with updated information as it becomes available. It’s worth exploring some of these sites if you plan to measure up your skills against current trends in your industry. If you are hunting for one particular statistic, such sources should point you in the right direction.