Competitor intelligence (CI) is an essential component for developing a business strategy. It provides insights into marketplace dynamics, benchmarks your financial performance, and reveals operational strengths and weaknesses of your competitors. The key to an effective CI process are the internal metrics or the key performance indicators (KPIs) derived from the financial statements – they allow a fair comparison between peer companies and help evaluate their progress over time.
The KPIs may vary by market or industry, but here are the most common metrics to use in your CI analysis:
The current ratio is a liquidity ratio that measures a company’s ability to pay short-term and long-term obligations. High current ratio indicates the business finances its assets with cash rather than short-term debt. High current ratio calculations also ensure the company has the ability to weather short-term economic downturns.
The return on assets (ROA) is a profitability ratio that measures how efficiently a company can manage its assets to produce profits. A high ratio means that the company is able to efficiently generate earnings using its assets.
The turnover ratios measure an asset’s activity or efficiency in generating or turning-over cash. For example, inventory turnover ratio shows how many times an inventory was turned into cash during an accounting period. A high turnover ratio is a sign that the company is producing and selling its goods or services very quickly.
The debt to equity ratio shows the percentage of company financing that comes from creditors and investors. A higher debt to equity ratio indicates that more creditor financing (bank loans) is used than investor financing (shareholders).
The dividend yield ratio shows the amount of dividends that a company pays to its investors in comparison to the market price of its stock. For example, the dividend yield ratio of 5% means that an investor earns 5% on his investment (in the form of dividends) if he buys the common stock of the company at current market price.
While in some industries it is common practice to disclose some ratios in annual reports, companies have no legal obligations to reveal their KPIs to outsiders. Navigating SEC filings in search of financial indicators can be confusing and time consuming. Being able to easily access competitive data will add instant value to the CI analysis and strategic decision-making processes. insightsoftware provides the functionality to pull information directly out of the SEC database to generate Excel -based reports for data benchmarking.
How do you gather your competitors’ financial information and what would help you make the process more efficient?