This part of the executive summary offers an overview of the industry in terms of the best or worst companies by various financial measures. The firms are ranked using the latest year on record so this differs from the rankings chapter where the various figures for a particular year end are compared. The idea is to highlight the most important companies so as to assist with market share calculations for example. The various rankings relate to five classes of industry analysis:

:: Sales Analysis

The Largest Companies
Identifies the companies with the largest turnover in the industry and gives an idea of market concentration and market size. Market share data is difficult to compute since many companies are in several distinct sectors or because in some sectors there are many small companies either not limited or not filing full accounting records. The ranking of the largest companies gives a feel for this important marketing data.

The Fastest Growing Companies
Evaluates the companies whose turnover has grown the fastest in the last four years. The faster growth companies might be attractive take-over targets or else companies offering products to emulate if it is this which is fuelling their growth.

The New Entrants to the Market
Lists the newly formed companies which are operating in the market. This might be important in protecting market share or in identifying new trends of customer behaviour if combined with knowledge of the product lines being offered.

:: Profit Analysis

The Most Operating Profit
Identifies the companies with the highest operating profit in the industry. Operating Profit is used since it is less variable than Pre-tax Profit due to the omission of Extraordinary Items. Screening criteria for a take-over for example might be that the company should be generating profits of a particular level.

The Fastest Growing Operating Profit
Evaluates the companies whose operating profit has grown the fastest in the last four years. The faster growth companies might be attractive take-over targets or else companies offering products to emulate if it is this which is fuelling their growth.

The Least Operating Profit
Lists the firms ranked by operating profit but sorted so that the biggest loss comes highest on the listing. Periodically companies might need restructuring or re-financing this listing might be a good way to identify companies that might require his sort of attention. This would also be valuable information as to the overall attractiveness of the industry.

:: Investor Analysis

The Most Value Added
Identifies the companies which add the most value in the course of their operations. We are talking here of the value created in terms of profit and are taking into consideration the assets which the business is employing to generate the profit. Value is added if the company is generating more enough profit to pay a reasonable rate of return on all these assets. It would therefore be possible for a profitable company to be destroying value in its operations if it was inefficiently using its resources. The figure itself is not important but the magnitude and sign is.

The Greatest Return on Equity
The return on equity is a measure of the attractiveness of the share holding in a particular company. We are looking at the total of shareholders funds.

The Least Value Added
Firms which have negative value added figures are those which are either making a loss or those which are making insufficient profit given the resources they are employing. Over time the value of the company is eroded in this way since it is not an economic proposition to continue doing business in this way.

:: Management Analysis

The Greatest Return on Capital Employed
Identifies the companies which have the highest percentage return on the capital they employ in the course of their operations. In a sense this is a measure of management efficiency since the decision to buy or lease, rent or own is within their remit. These decisions will impact the return on capital employed.

The Biggest Cash Balances
A listing of companies by cash balance will tend to be volatile from year to year. Generally speaking more liquidity is better than less. Opportunities can be taken advantage of quickly and there is less risk of default for the creditors. Too much cash however might be a bad thing since the return on cash is relatively low and it will reduce the overall return on capital employed. A company with cash in the bank might also make itself an attractive take-over target.

The Most Investment in Plant & Machinery
Investment in fixed assets will generally strengthen the Balance Sheet of a firm and increase the potential for borrowing. In terms of types of asset, the investment in plant & machinery implies the continued determination to stay up to date and since new manufacturing machinery tends to be more productive than old it also boosts potential future returns so this is a useful measure of management intentions.

:: Financial Stability Analysis

The Most Financially Stable
Financial stability can be defined in a number of ways. We have chosen to define it in relative terms using a combined ranking of current ratio, quick ratio and debt ratio. In our measure the companies which fall in the top third of the industry for current ratio and quick ratio as well as the lowest third for debt ratio will be considered the most stable. We are not suggesting the companies are stable in absolute terms only that relative to their immediate industry competitors they are more or less stable i.e. the whole industry might be in trouble such as if you were in the steam car industry.

The Most Improved Financial Stability
These companies will have a relatively low position in terms of current ratio or quick ratio and/or a relatively high debt ratio historically. Over the last three years these measures will have improved in relative terms.

The Firms with Worsening Financial Stability
Again this is a relative measure so for example a firm which had a very high current ratio in historic terms which has now declined to industry average levels recently might be featured. The ranking simply points out relative declines in financial stability rather than in absolute levels. This is a very useful indicator of company performance and financial riskiness when used in conjunction with the industry averages.

Thus for example the Investor Analysis seeks to identify the best companies to own from the point of view of an investor, while the Financial Stability Analysis might be of more direct interest to lenders.

Industry Average Gross
Profit Margin (%) - the graph shows the trend in gross margin through the period. Note in this example the standard deviation (SD) is small this means most of the companies have a value of gross margin close to the average so this would be a good benchmark.

Industry Average Operating
Profit Margin (%) - the graph shows the trend in operating profit through time. Note in this example the standard deviation (SD) is a larger this means that the benchmark average is less representative of the companies. Again most of the values fall within plus and minus one standard deviation but the band this forms is wider since there is more variance.