Lesson 9 of 9 · All lessons in this module
- The analysis process and ratio basics
- Common-size, trend analysis and graphs
- Activity ratiosVideo lesson
- Liquidity ratios and the cash conversion cycleVideo lesson
- Solvency ratiosVideo lesson
- Profitability ratiosVideo lesson
- Integrated ratio analysis and DuPontVideo lesson
- Integrated cases: a five-year scorecard, a peer comparison and a DuPont trend
- Industry-specific ratios and forecasting
Lesson 9 of 9 · 11 min
Industry-specific ratios and forecasting
Each industry has its own critical performance measures, and the results of ratio analysis, combined with judgment, feed forecasts that should cover a range of outcomes rather than a single number.
In short
- Industry-specific ratios capture what matters in a particular industry, e.g. same-store sales in retail or occupancy rate in hotels; they are especially important for early-stage companies not yet profitable.
- Regulated industries, especially banks, must meet regulatory ratios: capital adequacy, reserve requirements, liquid asset requirements.
- Business risk can be measured by the coefficient of variation of operating income, net income or revenue.
- Forecasts build on common-size and ratio analysis (e.g. expenses as % of forecast revenue, receivables from DSO), plus judgment.
- Forecasts should show a range: sensitivity analysis, scenario analysis and simulation.
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