Comparative Ratios and “Benchmarking” 395
though they are in different industries, because L.L. Bean’s shipping department is
one of the best. MicroDrive wants its own shippers to strive to match L.L. Bean’s
record for on-time shipments.
Comparative ratios are available from a number of sources, including Value Line,
Dun and Bradstreet (D&B), and the Annual Statement Studiespublished by Robert
Morris Associates, which is the national association of bank loan officers. Table 10-5
reports selected ratios from Market Guide, available through Yahoo!.
Each data-supplying organization uses a somewhat different set of ratios designed
for its own purposes. For example, D&B deals mainly with small firms, many of
which are proprietorships, and it sells its services primarily to banks and other
lenders. Therefore, D&B is concerned largely with the creditor’s viewpoint, and its
ratios emphasize current assets and liabilities, not market value ratios. So, when you
select a comparative data source, you should be sure that your emphasis is similar to
that of the agency whose ratios you plan to use. Additionally, there are often defini-
tional differences in the ratios presented by different sources, so before using a
source, be sure to verify the exact definitions of the ratios to ensure consistency with
your own work.
Differentiate between trend analysis and comparative ratio analysis.
Why is it useful to do a comparative ratio analysis?
What is benchmarking?
TABLE 10-5 Comparative Ratios for Dell Computer Corporation,
the Computer Hardware Industry, the Technology Sector,
and the S&P 500
Computer
Hardware Technology
Ratio Dell Industrya Sectorb S&P 500
P/E ratio 48.49 30.75 45.11 30.39
Market to book 13.57 7.95 5.59 5.62
Price to tangible book 13.57 7.97 7.24 8.48
Price to cash flow 40.55 27.52 33.58 21.06
Net profit margin 4.51 5.54 4.38 8.69
Quick ratio 1.05 1.07 2.32 1.14
Current ratio 1.23 1.48 2.88 1.69
Long-term debt to equity 0.11 0.51 0.23 0.68
Total debt to equity 0.11 0.73 0.29 0.94
Interest coverage (TIE)c — 16.04 6.78 8.53
Return on assets 4.51 5.54 4.38 8.69
Return on equity 25.69 25.04 7.01 17.38
Inventory turnover 69.40 21.71 10.90 10.45
Asset turnover 2.45 1.37 0.76 0.98
aThe computer hardware industry is comprised of 50 firms, including IBM, Dell, Sun Microsystems, Hewlett-
Packard, Hitachi, and Compaq.
bThe technology sector contains 11 industries, including communications equipment, computer hardware, com-
puter networks, semiconductors, and software and programming.
cDell had more interest income than interest expense.
Source:Multex.com, accessed through Yahoo!.
Analysis of Financial Statements 391
