Financial Performance Benchmarking - SG&A Expense
LIBERTYVILLE, Ill. - Dec. 20, 2016 - PRLog -- Most companies, if not all, benchmark to compare their performance against competitors, and even earlier versions of themselves, to understand the changing nature of their business and their industry's competitive landscape. Because of this and the increasing processing power of every analyst, managers find themselves overwhelmed with data and metrics. The trick is to find effective metrics and stick with them instead of trying to understand ever-changing fashionable ones.
Traditional benchmarking statistics usually address sales or revenues (top line of the income statement) because that has always been THE baseline measure of success. Sales are vital to ongoing success, but one of the longest lived metrics has been the cost of sales. This is not necessarily the COGS measure, which is typically the largest and a variable cost, but the SG&A/Sales ratio, which considers the SG&A (selling, general and administrative costs) expenses, composed of all the commercial expenses of operation incurred in the regular course of business pertaining to the securing of operating income, compared to sales. Comparing these to sales creates the SGA/Sales ratio, allowing managers to understand why their company spends so much to make a sale, as a fraction of overall costs; this is essential to controlling costs in the future.
This effective metric often goes under-utilized because each industry and individual company designates (and allocates) costs differently, so getting an apples to apples comparison is tough enough to discourage many people from utilizing this measure. For example, why do sales in the Industrials sector cost so little (17% on average) compared to IT (almost 38% on average)? The answer to this question seems simple, because the IT sector designates more costs to educate the customer and often requires more marketing. But this answer only appears easy in hindsight, once a manager has the data.
One of the leading tools to effectively use this ratio is Schonfeld and Associates SG&A Benchmarks Series of Reports. Schonfeld & Associates, Inc. (SAI) has overcome the typical problems associated with this measure. The ones most commonly brought to us are this data is hard to come by, not standardized, and varies widely between reporting country.
First, that the data is hard to come by, even for publicly traded companies. This can be true. Getting the data into a usable format is difficult. There are other products that allow managers to look at one company at a time, but without being able to aggregate the data or sort by industry or peer group it is difficult. SAI considers hundreds of companies in each industry and segments them into industry and size peer groups (over $10M, $100M and $1B in revenues) so that managers can see their direct competitors.
Second, that this data is not standardized. Many companies have their own metrics and treat the data differently. In many cases this is true, but SAI uses standardized data from SEC filings that are based on standardized data from filings, scrutinized by regulators. So users of SGA Benchmarks data know that the data has followed reporting standards and is standardized across the industry.
Finally, SG&A practices vary by country, so we provide the headquarters of companies by city to easily distinguish between countries so that different reporting practices can be easily identified and addressed before further efforts are taken. Additionally, the ratio controls for currency conversion rates because it holds sales and expenses in the same currency.
The SG&A Benchmarking reports allow for an analysis of not only the industry average, but also the industry range, presenting the 10th and 90th percentile ranges for each SG&A to sales ratio. This degree of accuracy helps managers determine how they compare to their competitors in their specific peer group and industry.
These reports benefit anyone seeking competitive benchmark intelligence including: corporate staff, financial analysts, investment professionals, lenders, M&A advisors, appraisers, and industry consultants.
For more information on SG&A Expense as a Percentage of Sales by Industry Sector, visit http://saibooks.com/