A great deal of comparative industry ratio data is available to professional financial and credit analysts, but they pay hefty subscription fees to get it. The challenge is finding that information for free. Here are some sources of ratio data and comparison:
Free: Yahoo!Finance and similar investing portals provide some ratios and limited comparison tools. The Yahoo!Finance “Key Statistics”
page shows several ratios, mainly valuation ratios.
For a modest fee: At the time of this writing, there is still little available for the ratio – hungry investor to buy. One source is
VentureLine, where, for $9.95, you can purchase a fairly complete rundown for a particular industry, like “electronic computers.” This product provides five years worth of data, making trend analysis practical. While $9.95 per industry can add up if you invest in a lot of industries, this tool is worth considering if youre doing a lot of ratio analysis.
More expensive: Value Line Investment Survey offers a window to many key ratios. Value Line doesnt present a lot of ratios but does give a lot of history, which can be better. The standard Value Line Investment Survey subscription costs $595 per year but offers a lot beyond ratio analysis.
If you have access to Dun & Bradstreet or Standard & Poors industry financial comparisons, dont hesitate to use these rich, complete, and up – to – date resources. They may be out of reach of the average investor due to cost. If you work with a broker or financial adviser, you may get access to some of these services for free.Using ratios in your analysis
What does a value investor look for when analyzing ratios?
Intrinsic meaning: What does the ratio tell you? If the debt – to – equity ratio is 3 to 1, the company has a lot of debt. If the inventory – to – sales ratio is greater than 1, the company turns its inventory less than once per year. A price – to – earnings ratio of 50 implies a 2 percent return on invested capital. These numbers tell you something without looking at any comparisons or trends.
Comparisons: For many analysts trying to get a picture of a companys health, comparative analysis is the most important use of ratios. A ratio acquires more meaning when its compared to direct competitors, the companys industry, or much broader standards, like the S&P 500. A profitability measure, such as gross profit margin, reported at 25 percent tells more when direct competitors are at 35 percent plus. Analysts make similar comparisons with asset utilization, financial strength, and valuation ratios.
Consistency: The hallmark of good management, as well as of an attractive long – term investment, is the consistency of results delivered. If profit margins are consistent and changing at a consistent rate, the company is predictable – and most likely in control of its markets. Inconsistent ratios reflect on inconsistent management, competitive struggles, and cyclical industries, all of which diminish a companys intrinsic value.
Trends: Better than consistency alone is consistency with a favorable trend. Growing profit margins, return on equity, asset utilization, and financial strength are all very desirable, particularly if valuation ratios havent kept pace. Value investors who study trends carefully have information that most investors dont have.
