How to Calculate Rankings Among Industry Ratios
An industry or financial ratio compares sets of financial or other data within a company to measure its operating performance and financial condition. A company’s management uses ratios to make key decisions about its business. You can rank your small business among other businesses in your industry based on a particular industry ratio to determine how well you are performing compared to your competitors. A higher rank means your business is operating more efficiently in that particular area than the other businesses that are ranked lower.
Decide what industry ratio you want to use to rank businesses. Determine from your records what that industry ratio currently is for your business. For example, assume that you want to rank the businesses in your industry by profit margin and that your profit margin is 27 percent.
Find the industry ratio for other businesses in your industry. You can find industry and financial ratios from resources at your local library, such as “Financial Studies of the Small Business,” “Risk Management Association -- Annual Statement Studies” and “Almanac of Business and Industrial Financial Ratios.” In this example, assume you found information on your competitors that shows Company A’s profit margin is 15 percent, Company B’s is 26 percent and Company C’s is 20 percent.
Determine whether a lower or higher ratio represents a higher rank. Some ratios, such as return on equity, are more beneficial to a company when they are higher. Other ratios, such as an expense ratio, are more beneficial to a company when they are lower. In this example, a higher profit margin is better for your business, which means a higher profit margin ranks higher than a lower profit margin.
Determine which company has the best ratio, which is either the highest or lowest, depending on the ratio. Write the company and its ratio on the first line of a sheet of paper to designate that is has the highest rank. In this example, since your business has the highest profit margin of 27 percent, write your company name and profit margin on the first line.
Identify the company with the next best ratio. Write that company’s name and ratio on the second line. Continue finding the company with the next best ratio and writing its name and ratio below the previous company until you have listed each company. The company on the lowest line has the lowest rank. Continuing with the example, write Company B and its 26 percent profit margin on the second line, list Company C and its 20 percent profit margin on the third line and write Company A and its 15 percent margin on the last line. This shows that your business ranks higher than the others in your industry based on your profit margin.