Industry's Most Profitable Companies Use Financial Ratios to Analyze Performance
Although many interrelated factors contribute to the success of the industry’s most profitable companies, two ratios that consistently differentiate the profit leaders are: (1) significantly lower “total operating expenses as a percent of sales,” and (2) higher “sales growth.”
ASA’s Operating Performance Report is an annual study that includes vital industry benchmarks and ratios like: profitability, asset & financial management, personnel productivity, inventory management, accounts receivable, sales performance, and expense management. The OPR provides an opportunity for PHCP and PVF wholesalers to compare their own company’s performance versus industry peers. Even simple analysis can provide significant insights that may not otherwise be possible.
Moreover, an important component of each year’s study is to provide results for the aggregate performance of the “most successful industry firms” (i.e., those that are among the upper 50% highest performing companies, based on the ratio “before tax return on assets”). Such information is invaluable for pinpointing your own firm’s strengths, weaknesses, and improvement opportunities.
Results from the 2007 study of 2006 results highlight this finding presented above - that profit leaders have significantly lower “total operating expenses as a percent of sales” and higher “sales growth”:
All Responding PHCP Wholesalers
Total Operating Expenses as a % of Net Sales 23.0%
Sales Change from the Prior Year (%) 7.9%
High Profit Companies
Total Operating Expenses as a % of Net Sales 21.2%
Sales Change from the Prior Year (%) 12.1%
In a struggling economic environment, using data to properly channel resources into areas that will help a company’s profitability can prove the difference between growth and decline. ASA’s Operating Performance Report is the only comprehensive annual study of the PHCP/PVF industry. Submission deadline is May 31. For more information on how to participate, contact Chris Murin at email@example.com or 312-464-0090 ext. 205.