The report includes eight graphs which are listed below, aimed
at illustrating industry trading patterns. All the companies who
are filing sufficient data are featured using the most recently
filed data.
For example take the Industry Cash Flow graph. A value is calculated for each
company which shows whether the company is likely to be able to sustain growth
or whether it is overtrading. Since all the companies that file sufficient data
are illustrated the graph shows good performance and bad performance in this
respect. Similarly the Industry Productivity graph would show good and bad performance.
Graphs showing the variation of a measure with Return on Capital Employed (ROCE)
are drawn to illustrate good and bad industry practice. The companies are ranged
in order of decreasing ROCE from left to right and the values of for example
Current Ratio are shown. Sometimes this reveals interesting results such as the
fact that all companies with good financial returns (high ROCE) have consistently
high Current Ratios.
Executive Summary - Graph Details
Industry Cash Flow Value - a measure of the relationship between
the growth of the company and the operating cash flow. To continue
growing without additional funding a company must be careful not
to overtrade. The graph shows companies with better than average
chances of continued growth without external funds and those with
worse than average chances of growth.
Industry Credit Policy Value - the relationship between credit
given and credit taken within the industry. In some industries more
credit is taken by companies than given (e.g. Supermarkets). This
means the suppliers will be financing the expansion of supermarkets.
In other industries companies need to give extended credit terms
to secure orders.
Variation of Debt Ratio & Return on Capital Employed - since
the companies have been ranked by return on capital employed from
left to right (A has higher ROCE than B etc.) the graph will show
if the more successful firms in financial terms have high or low
debt ratios. In terms of taxation it makes sense for a firm to carry
debt but after a certain point this advantage is outweighed by increased
risk. The graph above would show that the more successful firms tend
to have lower debt ratios of about 0.5.
Variation of Stock Turnover & Return on Capital Employed - stock turnover is a measure of the efficiency with which a firm manages
its inventories. Since the firms are again ranked in decreasing return
on capital employed the moving average above would show that the
more successful firms tend to have higher stock turnover levels.
It might be possible for the reverse to be true in a particular industry
for example if availability was a key part of customer decision making.
Variation of Fixed Asset Turnover with
Return on Capital Employed - in certain industries the fixed assets are unimportant to the returns
the company is making. Service industries for example will not tend
to have clear relationships of this kind and the graph above might
illustrate this result. Other industries such as Hotels for example
will have very different profiles and there might well be an observable
relationship between successful financial performance (companies
with a higher ROCE) and fixed assets turnover which is a measure
of the efficiency of fixed asset utilisation.
Variation of Credit Policy with Return
on Capital Employed - credit
policy is the ratio of days credit taken from suppliers to days credit
given to customers. The above graph would show a relationship suggesting
the best performing companies have a lower credit policy ratio than
those with lower values of ROCE. An explanation might be that the
companies are getting discounts for paying bills early which increases
their average margins or that the grant of longer average credit
terms encourage more customers. This information is useful in managing
debtors and creditors to the companies best advantage.
Industry Productivity - in many cases labour costs are a major
element of total cost. If productivity has increased then the company
is becoming more competitive since the same output can be generated
using fewer inputs of labour. The graph shows the change in productivity
in the firm's most recent year and compares this to the industry
average.
Variation of Current Ratio & Return on Capital Employed - the companies
are ranked by ROCE with company A having higher ROCE than company
B etc. The moving average line is calculated and it shows in the
example above that the companies with better financial performance
(higher ROCE) have higher values of Current Ratio on average. This
information could be used in determining financial targets when drawing
up a new business plan.
We calculate averages for a five year period since
companies do not have the same yearend. Each company page shows the
latest four years on record for that particular company and the relevant
four years of industry average benchmark.
