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EMG 4005 - Business Research Skills and Application: Ratios

What are Industry Ratios?

Ratios are used to measure the financial strengths and weaknesses of companies or industries. Financial ratios such as earnings per share are figured by comparing two different elements of a company's financial statement. They are a common means of determining a company's performance and strength by comparing that company's ratios with those of the industry overall. 

Ratios are based on data found in balance sheets, income statements, and sometimes share prices.

The sources listed here will provide you with either company ratios or industry ratios.

Electronic Resources for Ratios

The following library databases are strong resources for ratio information.

Industry Ratios - Print Resource

This resource can be found in our Reserve collection at the Service Desk  under BUS 4788  for in-library use.

 Almanac of Business and Financial Ratios (HF5681. R25 A45) - A benchmark for evaluating an individual company's financial performance. Data derived from IRS figures on US and international companies.   Tracks 50 operating and financial factors in nearly 200 industries broken down by asset size. Arranged by NAICS code.

Web Resources for Ratios

Concentration Ratios

Concentration Ratios Definition:

Concentration ratios measure competition in an industry. According to Investopedia, the concentration ratio is a ratio that indicates the relative size of firms in relation to their industry as a whole. Low concentration ratio in an industry would indicate greater competition among the firms in that industry than one with a ratio of nearing 100% (i.e. monopoly). The concentration ratio indicates whether an industry is comprised of a few large firms or many small firms.  The most common concentration ratios are the CR4,  a  four-firm concentration ratio which consists of the market share of the four largest firms in an industry, and CR8 - the eight largest firms. 

Herfindahl-Hirschman Index (HHI) - is used to measure market concentration. It is calculated by squaring the market share of each firm competing in a market, and then summing the resulting numbers.  The HHI number can range from close to zero to 10,000. The closer a market is to being a monopoly, the higher the market's concentration (and the lower the competition).  If for example, there were only one firm in an industry, that firm would have 100% market share, and the HHI would equal 10,000, indicating a monopoly.  A market with almost 0 is considered perfect competition, a result of less than 1,000 is considered a competitive marketplace, and a result greater than 1,800 is considered a highly concentrated marketplace.

Economic Census: Concentration Ratios

Business Formulas