engleski

Financial ratios benchmarks – average of industry or some other measure?

Financial ratios analysis is extensively used in practice as well as in empirical academic research. Moreover, it is common in most countries to issue statistical data about selected financial ratios by industries. Financial performance of a specific company based on financial ratios is very often assessed related to some benchmark. The mostly known benchmark measure for any financial ratio is industry average but even it could be calculated in two alternative ways. Beside industry averages, there are examples of different approaches to ratios statistics. In our paper we firstly investigate what measures are most often used as benchmarks, what are available alternatives and which are advantages and disadvantages of their use. We investigate that by means of hypothetical examples of current ratio. Then, we test different benchmark measures for current ratio on a sample of firms to analyze their effect on the performance rank of a single firm based on a specific benchmark measure. Finally, we give recommendations about the use of benchmark measures.

Benchmark ratios ; Financial analysis ; Financial ratios ; Financial statements

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