4. Robert Morris Associates' Annual Statement Studies

Description of Publication: Annual Statement Studies

This book is filled with financial statistics. If you don't like a lot of numbers, find someone who does and get that person to explain them to you because it's important and because it isn't that hard. The numbers are given in percentages of assets and sales. This book is about small business financial statements: balance sheets, income statements, and financial ratios. It is an excellent business resource.
Robert Morris Associates (RMA) is the national association of bank loan and credit officers. Founded in 1914, RMA has grown (as of publication date) to nearly 3,000 commercial banks and thrift institutions, which account for almost 80 percent of the consumer and industrial lending done by these types of U.S. financial institutions. RMA members are represented in the association by nearly 15,000 commercial loan and credit officers and related personnel in all 50 states, Puerto Rico, Canada, and offshore cities.
The RMA Annual Statement Studies is made possible through the voluntary cooperation of RMA member banks; therefore, it is designed primarily for commercial bankers. However, the material is very useful for those contemplating going into business or facing financial questions in an ongoing business. The mass of financial information on the page can be intimidating, but is actually quite easy to apply. Two perspectives can be taken:

microeconomic, which shows how one can compare his or her business with an industry average, and
macroeconomic, which shows statistical averages (national) for company activities in different asset ($500 million in total assets or less, depending on the industry studied) and sales sizes.

The Statement Studies contain composite financial data on manufacturing, wholesaling, retailing, service, and contracting lines of business. Financial statements on each industry are shown in common size form (those whose numerical amounts are expressed as percentages of an important summary figure) and are accompanied by widely used ratios. In Parts I through III, data for a particular industry appear on both the right- and left-hand pages of the spread (see the sample statement pages provided). The heading "Current Data Sorted By Assets" is on the far left. The center section of the double page presentation contains the "Comparative Historical Data," with the "All Sizes" column for the current year shown under the heading "4/1/96-3/31/97." Comparable data from past editions of the Annual Statement Studies also appear in this section. To the far right is the display "Current Data Sorted by Sales."
The information shown at the top of each page includes the identity of the industry group; its Standard Industrial Classification (SIC) number; a breakdown by size categories of the types of financial statements reported; the number of statements in each category; the dates of the statements used; and the size categories. For instance, 225(4/1-9/30/96) means that 225 statements with fiscal dates between April 1 and September 30, 1996 make up part of the sample. When there are fewer than 10 financial statements in a particular size category, the composite data are not shown because such a small sample is not considered representative and could be misleading. However, all the data for that industry are shown in the "All Sizes" column. The total number of statements for each size category is shown in bold print at the top of each page.
At the bottom of each page, the sum of the net sales (or revenues) and total assets for all the financial statements in each size category are shown. These data are provided to allow recasting the common size statements into dollar amounts. To do this, divide the number at the bottom of the page (either net sales or total assets, depending on which one you are analyzing) by the number of statements in that size category. Then multiply the result by the percentages in the common size statement.

Below the common size balance sheet and income statement presented on each data page is a list of ratios that have been computed from the financial statement data. Each ratio has three values: the upper quartile, median, and lower quartile. For any given ratio, these figures are calculated by first computing the value of the ratio for each financial statement in the sample. Theses values are then arrayed in an order from the strongest to the weakest. The values are then divided into four groups of equal size. The three points that divide the array are called quartiles-upper, median, and lower quartile.

From the service of skating rinks to the manufacture of ophthalmic goods, the Annual Statement Studies can give the budding analyst a look at how the company he or she is studying compares to the industrial average in all the important items: trade receivables, inventory, fixed assets, trade payables, long-term debt, net worth, net sales, gross profit, profit before taxes, current ratios, debt/worth ratios, and the like. These averages can be used to compare a specific company or simply used to determine the dynamics of a particular industry. The averages also show very specific trends over a period of five years ("Comparative Historical Data"). When you study the common size sheets in particular industries, the numbers begin to reveal certain characteristics of the industry. For example, do inventories in retail trade among department stores have any parallels to those of the hardware industry? Can you read into these figures the economic, political, technological, or international implications for the industry in question?

The information offered by the Annual Statement Studies is really the beginning of financial analysis in that if the company being studied is different from the national average, the immediate question is why? Knowing what questions to ask is always at the heart of each good company strategy.

A very important part of this publication can be found at the back of the book: "Sources of Composite Financial Data-A Bibliography." Although the Annual Statement Studies edition covers move than 400 industries, some industries are not covered. Information on industries not covered or supplemental data on some of the ones that are can be found in this section. The information contained in this section is divided into two parts:

A subject index that enables you to determine which entries cover a particular line of business. For example, if you need data on drugstores, the index indicates entry numbers (not page numbers) of the listed sources that provide it.
The actual list of sources of information, citing title, publisher, price, and a brief explanation of the data available.

The actual list of sources of information, citing title, publisher, price, and a brief explanation of the data available.

The Annual Statement Studies data are taken directly from the financial statements of close to 138,000 customers of RMA member institutions. Data on 483 specific industries is organized by SIC (4-digit level) and sorted by both sales and assets. Robert Morris Associates cautions that the Studies be regarded only as a general guideline and not as an absolute industry norm. This is due to limited samples within categories, the categorization of companies by their primary SIC number only, and different methods of operations by companies within the same industry. For these reasons, RMA recommends that the figures be used only as general guidelines in addition to other methods of financial analysis.

Annual Statement Studies
www.rmahq.org
RMA@Smartmail
CD available

Annual Statement Studies

annual publication
ISBN 1-57070-019-2
For more information, call: Robert Morris Associates Customer Service Department,
Phone (800) 677-7621
Fax (888) 762-8500

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