How to Find Industry Averages
Industry average includes data taken from different organizations that producing different products and offering different services. Industry average is done by collecting data through a survey.
Thus, it is important to know how to find industry average that is quite complex.
Determining the industry average is a complex procedure used when planning to improve the program set. Obviously, you can conduct industry average once you have collected the necessary data pertaining to the organization. Many people are confused between industry average and financial ratios. Ideally, a financial ratio is used in comparing the financial and historical performance of the company against the industry averages. In this way you should learn how to compare industry average to financial ratios by using subscription or free-online tools.
Steps to Follow
The first step to find the industry average is by familiarizing yourself about the financial ratios of your company. There is a given formula that should be followed in determining the financial ratio. The good thing about this process is that it does not only lead to industry average but also measures the debt obligation of the company. Another ratio that you can use to compare with industry average is the return on equity ratio. By comparing the different ratios to industry average you can determine if your company is performing well against other industry peers.
Browsing online for websites that give information about finance industry will help you understand how industry average works. Some websites provide comprehensive list of the top industries and all you have to do is find the statistics that provide the key industry averages including the return on equity. Likewise, you can also use other web page that has the list of companies that resemble your business. This will help you in determining the financial ratios and compare it with industry average. However, financial ratios are divided in several categories such as sales growth rates, profits, financial condition ratios and the ROE.
In the event that the financial ratios do not match with the industry average you should not panic. Instead, you should dig further to obtain other variations. The good point about this is that it offers a room for improvement especially for the cost structure. In this sense, it is best to know the details about the data collected. In order to be obtaining specific answer about industry average you should collect data according to the appropriateness, confidence as well as the risks. In addition, you should keep in mind that the average itself does not guarantee probable value of distribution. That is why it is important to collect another set of data that might have similar average. On the other hand, using the average involves greater risk thus using of median or mode is recommended. Unless you have the proper knowledge about the financial ratio you would not be able to establish industry average.