How Are Industry Ratio Averages Found?

Patrick Lynch

One of the main purposes of industry ratio averages is to help investors decide if an organization is worth investing money in. To find these figures, get the industry code whose discovery depends on the country. Then find the requisite website and enter the keywords of the industry that is being analyzed. Ratio books can be found in libraries or a country’s census department. Finding these averages is a complicated process and involves taking data from various aspects of an organization such as tax returns and other sources.

Industry ratio averages can help a business owner calculate their potential profit.
Industry ratio averages can help a business owner calculate their potential profit.

Industry ratio averages are used to compare the performances of organizations against the industry’s average figures. For potential investors, this is important data because it helps them decide if a company is worth investing in. Business students are often asked to look at industry ratio averages as part of an undergraduate examination.

The first step in finding the ratio averages is to locate the industry code. Methods of discovering this code varies depending on the country. In the U.S. for example, the North American Industry Classification System (NAICS) is used.

Industry ratio averages are normally found in groups of NAICS codes. When looking for American averages, go to the NAICS website and type in the relevant industry keywords. Be careful when typing in the code. The last three digits can make an enormous difference.

Look for ratio books in a library. Again, these books depend on the country. High quality libraries should have some form of a ratio book with universities usually having all versions.

Check the ratio book for the specific industry that is in question. If it is impossible to find ratio books, go online and search for free industry ratio average information. The census agency of most nations will have a certain amount of statistics relating to employment and payroll figures. This information should be reasonably up to date because the census department usually collects the data on a regular basis.

Industry ratio averages are necessary for entrepreneurs who are considering opening a new business. They can help a business owner calculate their potential profit. Simply look at the ratios of companies which are in the same industry and are of a similar size.

The ratio sources collect data regards dozens if not hundreds of financial parameters. These can then be reported in ratio and average form. Examples of the figures include profit margin and sales to inventory. The data for industry ratio averages are collected from tax returns, bank statements, and a variety of other sources.

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