Ratio Analysis Tutorial: Benchmarking | How Benchmarks Allow Analysis
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Ratio Analysis Tutorial: Benchmarking | How Benchmarks Allow Analysis
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Time Markers:
1) What You Can Analyse From a Single Ratio 0:16
2) 3x Standard Ways to Benchmark a Ratio Result 1:27
3) Cross-Sectional Analysis 2:30
4) Time Series Analysis 3:12
5) One Ratio Against Another 4:04
6) Conclusion and Wrap Up 6:02
What You Can Analyse From a Single Ratio...
Ask yourself what you can deduce from the ROE ratio result on the next slide:
What Does this ROE Result Imply?
9.8%
That’s Right! A single ratio result tells us very little.
Thus, the first step of ratio ‘analysis’ after computation is Benchmarking!
3 Standard Ways to Benchmark a Ratio Result...
Benchmark one ratio against another.
Benchmark a ratio across time (time series analysis).
Benchmark a ratio against other businesses or a whole industry (cross-sectional analysis).
Now Let’s Try This Test Again...
Ask yourself what you can deduce from the ROE ratio result on the next slide:
REMEMBER: You are an absolute beginner who hasn’t yet studied a single ratio in detail ...but look what the benchmarking technique can even offer your own (current) skills in ratio analysis.
Cross-Sectional Analysis...
Our Company: ROE = 9.8%
Company B: ROE = 6.1%
Company C: ROE = 2.4%
Company D: ROE = 5.6%
Time Series Analysis...
Our Company 2015: ROE = 9.8%
Our Company 2014: ROE = 8.2%
Our Company 2013: ROE = 7.8%
Our Company 2012: ROE = 5.9%
One Ratio Against Another...
Our Company: ROE = 9.8%
Our Company: ROA = 7.5%
So Always Remember...
The First Step of Ratio ‘Analysis’ is Benchmarking.
Benchmarking one ratio against another
Benchmark a ratio across time (time series analysis)
Benchmark a ratio to another business or whole industry (cross- sectional analysis)
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