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Industry Comparison / RMA
Lending Cloud offers Risk Management Association (RMA) Industry Comparison data connectivity. If your institution has purchased the connectivity, this data is accessible using this menu item. If your organization has purchased the RMA connectivity, your system administrator must activate its use in Defaults>System Administration>Functionality Groups. If you want to use the RMA data, you must assign an NAICS code for the primary or secondary operation on the General Information page. Lending Cloud populates the Industry Comparison submenu based on the check boxes that you have selected in Reports Setup.
RMA Data Available for Industry Comparison
As of the Lending Cloud 24.31 release, the Industry Comparison data includes RMA data for 4/1/2023-3/31/2024. Also, the list of historical years provided in Industry Comparison reflects 4/1/2023-3/31/2024 as the current year. All prior years have been adjusted accordingly.
An overview of the computation of ratios and other values in RMA data follows the RMA Annual Statement Studies Submission Campaign information.
Generating an Industry Comparison
Use the Select Industry Comparison page to generate a comparison.
To generate an industry comparison
1. When in a customer record, select Income / Expense from the Lending Cloud menu. The Income/Expense page appears.
2. Click Industry Comparison to display the list of income/expense spreads.
3. From the list, select the income/expense spread to use for a comparison of the customer against the industry. The Select Industry Comparison page appears.
4. From the (YYYY) RMA Data drop-down list, select one of the following options.
- Sorted By Sales
- Sorted By Assets
- Comparative Historical Data
Based on your selection, a drop-down list specific to that data appears to the right of the RMA Data field.
5. From the drop-down list to the right of the (YYYY) RMA Data field, select the appropriate sales size category, assets size category, or date (historical year) option. For sales and assets, the list is populated by values pulled from the Defaults section of the system.
6. From the Ratio Values drop-down list, select one of the following options.
- Upper Quartile
- Median Quartile
- Lower Quartile.
7. From the Region drop-down list, select one of the following options.
- National
- Northeast
- Southeast
- Central
- South Central
- North Central
- West
8. After selecting all appropriate values for the comparison, click the Save & Update button to generate the Industry Comparison page for review.
9. To perform another comparison, click the Update button in the upper-right corner of the Industry Comparison page. The Update Industry Comparison page appears. Repeat steps 4-8 above to generate the Industry Comparison page based on the new criteria.
RMA Annual Statement Studies Submission Campaign
The 2025 RMA Annual Statement Studies® submission campaign begins early in the second quarter of the year and ends September 1, 2025. The required date range of financial statements for the campaign is 4/1/2024 through 3/31/2025.
The Lending Cloud Risk Management Association (RMA) Submission Guide contains information about generating statement submission files and providing them to the RMA. You can also access the guide from the Reference Guides section of the Lending Cloud eHelp home page.
RMA Computation of Ratios and Other Values
Following is an overview of the computation of ratios and other values available in RMA data.
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Use these chart of accounts to ensure an accurate common-sized comparison is displayed on the RMA screen if doing Percentage of Completion: A/R Progress Billings A/R Current Retention Cost & Est. Earnings In Excess of Billings Joint Ventures & Investments A/P Retention Billings in Excess of Costs & Est. Earnings Definition of Ratios The Statement Studies includes a series of ratios that have been computed from the financial statement data below the common size balance sheet and income statement presented on each data page. Each ratio has three values: the upper, median, and lower quartiles. For any given ratio, these figures are calculated by first computing the value of the ratio for each financial statement in the sample. These values are then listed in an order from the strongest to the weakest. (We acknowledge that, for certain ratios, there may be differences of opinion concerning what is a strong or a weak value. RMA has resolved this problem by following general banking guidelines consistent with sound credit practice in its presentation of data.) The array of values are then divided into four groups of equal size. The three points that divide the array are called quartiles; the upper quartile, the second quartile (or median), and the lower quartile. The upper quartile is that point at which ¼ of the array of ratios fall between the strongest ratio and the upper quartile point. The median is the middle value, and the lower quartile is that point at which ¾ of the array fall between the strongest ratio and the lower quartile point. The median and quartile values will be shown on all Statement Studies data pages in the order indicated below. An actual example of the Current Ratio for the SIZE CLASS 500M-2MM SIC #2396 is also shown below.
There are several reasons for using medians and quartiles instead of an average. One is to eliminate the influence that values in an "unusual" statement would have on an average. The method used more accurately reflects the ranges of ratio values than would a straight averaging method. It is important to understand that the spread (range) between the upper and lower quartiles represents the middle 50% of all the companies in a sample. Ratio values greater than the upper quartile or less than the lower quartile therefore begin to approach "unusual" values. For some ratio values, you will occasionally see an entry that is other than a conventional number. These unusual entries are defined as follows: UND; This stands for "undefined," the result of the denominator in a ratio calculation approaching zero. NM; This may occasionally appear as a quartile or median for the ratios sales/working capital, debt/worth, and fixed/worth. It stands for "no meaning" in cases where the dispersion is so small that any interpretation is meaningless. 999.8; When a ratio value equals 1,000 or more, it also becomes an "unusual" value and is given the "999.8" designation. This is considered to be a close enough approximation to the actual unusually large value. -.0; In a few places in this book, we encounter a negative value so minute that, when rounded, it becomes zero. We have used the symbol "-.0" to reflect this, but it is important to recognize that it is the result of rounding a negative number. Throughout the Statement Studies, the ratio values have been omitted whenever there were fewer than 10 statements in a sample. Occasionally, the number of statements used in a ratio array will differ from the number of statements in a sample because certain elements of data may not be present in all financial statements. In these cases, the number of statements used is shown in parentheses to the left of the array. In interpreting ratios, the "strongest" or "best" value is not always the largest numerical value, nor is the "weakest" always the lowest numerical value. The following description of each of the ratios appearing in the Statement Studies will provide details regarding the arraying of the values. The ratios in the Statement Studies are grouped into five principal categories: liquidity, coverage, leverage, operating, and specific expense items. Liquidity Ratios Liquidity is a measure of the quality and adequacy of current assets to meet current obligations as they come due. Current Ratio Computation: Total current assets divided by total current liabilities.
Total Current Assets
Interpretation: This ratio is a rough indication of a firm's ability to service its current obligations. Generally, the higher the current ratio, the greater the "cushion" between current obligations and a firm's ability to pay them. The stronger ratio reflects a numerical superiority of current assets over current liabilities. However, the composition and quality of current assets is a critical factor in the analysis of an individual firm's liquidity. The ratio values are arrayed from the highest positive to the lowest positive. Quick Ratio Computation: Cash and equivalents plus trade receivables divided by total current liabilities.
Cash & Equivalents + Trade Receivables - (net)
Interpretation: Also known as the "ACID TEST" ratio, it is a refinement of the current ratio and is a more conservative measure of liquidity. The ratio expresses the degree to which a company's current liabilities are covered by the most liquid current assets. Generally, any value of less than 1 to 1 implies a reciprocal "dependency" on inventory or other current assets to liquidate short-term debt. The ratio values are arrayed from the highest positive to the lowest positive. If the number of statements used in the calculation of this ratio differs from the sample size used in the asset category column, the sample size for each ratio will be printed in parentheses to the left of the array. Sales/Receivables Computation: Net sales are divided by trade receivables.
Net Sales
In the contractor section, both Accounts Receivable&emdash;Progress Billings and Accounts Receivable&emdash;Current Retention are included in the Receivables figure used in calculating the Revenues/Receivables and Receivables/Payables ratios. Interpretation: This ratio measures the number of times trade receivables turn over during the year. The higher the turnover of receivables, the shorter the time between sale and cash collection. For example, a company with sales of $720,000 and receivables of $120,000 would have a sales/receivables ratio of 6.0, which means receivables turn over six times a year. If a company's receivables appear to be turning more slowly than the rest of the industry, further research is needed and the quality of the receivables should be examined closely. A problem with this ratio is that it compares one day's receivables, shown at statement date, to total annual sales and does not take into consideration seasonal fluctuations. An additional problem in interpretation may arise when there is a large proportion of cash sales to total sales. When the receivables figure is zero, the quotient will be undefined (UND) and represents the best possible ratio. The ratio values are therefore arrayed starting with undefined (UND) and then from the numerically highest to the numerically lowest value. The only time a zero will appear in the array is when the sales figure is low and the quotient rounds off to zero. By definition, this ratio cannot be negative.
Days' Receivables: The sales/receivables ratio will have a figure printed in bold type directly to the left of the array. This figure is the days' receivables.
Computation: The sales/receivables ratio divided into 365 (the number of days in one year).
365
Interpretation: This figure expresses the average time in days that receivables are outstanding. Generally, the greater number of days outstanding, the greater the probability of delinquencies in accounts receivable. A comparison of a company's daily receivables may indicate the extent of a company's control over credit and collections. The terms offered by a company to its customers, however, may differ from terms within the industry and should be taken into consideration. In the example above, 365 ÷ 6 = 61&emdash;i.e., the average receivable is collected in 61 days.
Cost of Sales/Inventory Computation: Cost of sales divided by inventory. Cost of Sales
Interpretation: This ratio measures the number of times inventory is turned over during the year. High inventory turnover can indicate better liquidity or superior merchandising. Conversely, it can indicate a shortage of needed inventory for sales. Low inventory turnover can indicate poor liquidity, possible overstocking, obsolescence, or, in contrast to these negative interpretations, a planned inventory buildup in the case of material shortages. A problem with this ratio is that it compares one day's inventory to cost of goods sold and does not take seasonal fluctuations into account. When the inventory figure is zero, the quotient will be undefined (UND) and represents the best possible ratio. The ratio values are arrayed starting with undefined (UND) and then from the numerically highest to the numerically lowest value. The only time a zero will appear in the array is when the cost of sales figure is very low and the quotient rounds off to zero. Some service industries report data for cost of sales while others do not. Note that in cases where the sample reporting it was insufficient, we have adjusted the data for cost of sales by putting it into operating expenses. Please be aware, too, that our data collection process does not provide for differentiating the method of inventory valuation.
Days' Inventory: The cost of sales/inventory ratio will have a figure printed in bold type directly to the left of the array. This figure is the days' inventory. Computation: The cost of sales/inventory ratio divided into 365 (the number of days in one year).
365
Interpretation: Division of the inventory turnover ratio into 365 days yields the average length of time units are in inventory.
Cost of Sales/Payables Computation: Cost of sales divided by trade payables. Cost of Sales
In the contractor section, both Accounts Payable&emdash;Trade and Accounts Payable&emdash;Retention are included in the Payables figure used in calculating the Cost of Revenues/Payables and Receivables/Payables ratios.
Interpretation: This ratio measures the number of times trade payables turn over during the year. The higher the turnover of payables, the shorter the time between purchase and payment. If a company's payables appear to be turning more slowly than the industry, then the company may be experiencing cash shortages, disputing invoices with suppliers, enjoying extended terms, or deliberately expanding its trade credit. The ratio comparison of company to industry suggests the existence of these possible causes or others. If a firm buys on 30-day terms, it is reasonable to expect this ratio to turn over in approximately 30 days.
A problem with this ratio is that it compares one day's payables to cost of goods sold and does not take seasonal fluctuations into account. When the payables figure is zero, the quotient will be undefined (UND) and represents the best possible ratio. The ratio values are arrayed starting with undefined (UND) and then from the numerically highest to the numerically lowest value. The only time a zero will appear in the array is when the cost of sales figure is very low and the quotient rounds off to zero.
Days' Payables: The cost of sales/payables ratio will have a figure printed in bold type directly to the left of the array. This figure is the days' payables. Computation: The cost of sales/payables ratio divided into 365 (the number of days in one year).
365
Interpretation: Division of the payables turnover ratio into 365 days yields the average length of time trade debt is outstanding.
Sales/Working Capital Computation: Net sales divided by net working capital (current assets less current liabilities equals net working capital).
Net Sales
Interpretation: Working capital is a measure of the margin of protection for current creditors. It reflects the ability to finance current operations. Relating the level of sales arising from operations to the underlying working capital measures how efficiently working capital is employed. A low ratio may indicate an inefficient use of working capital, while a very high ratio often signifies overtrading&emdash;a vulnerable position for creditors. If working capital is zero, the quotient is undefined (UND). If working capital is negative, the quotient is negative. The ratio values are arrayed from the lowest positive to the highest positive, to undefined (UND), and then from the highest negative to the lowest negative. NM may occasionally appear as a quartile or median for the ratios sales/working capital, debt/worth, and fixed/worth. It stands for "no meaning" in cases where the dispersion is so small that any interpretation is meaningless. Coverage Ratios: Coverage ratios measure a firm's ability to service debt. Earnings Before Interest and Taxes (EBIT)/Interest Computation: Earnings (profit) before annual interest expense and taxes divided by annual interest expense.
Earnings Before Interest & Taxes
Interpretation: This ratio is a measure of a firm's ability to meet interest payments. A high ratio may indicate that a borrower would have little difficulty in meeting the interest obligations of a loan. This ratio also serves as an indicator of a firm's capacity to take on additional debt. Only those statements that reported annual interest expense were used in the calculation of this ratio. If the number of statements used in the calculation of these ratios differed from the sample size used in the asset category column, the sample size for each ratio will be printed in parentheses to the left of the array. If there were fewer than 10 ratios in an array, no entry will be shown. The ratio values are arrayed from the highest positive to the lowest positive and then from the lowest negative to the highest negative.
Net Profit + Depreciation, Depletion, Amortization/Current Maturities Long-Term Debt Computation: Net profit plus depreciation, depletion, and amortization expenses, divided by the current portion of long-term debt.
Net Profit + Depreciation, Depletion, Amortization Expenses
Interpretation: This ratio expresses the coverage of current maturities by cash flow from operations. Since cash flow is the primary source of debt retirement, this ratio measures the ability of a firm to service principal repayment and is an indicator of additional debt capacity. Although it is misleading to think that all cash flow is available for debt service, the ratio is a valid measure of the ability to service long-term debt.
Only data for corporations that have the following items were used: Profit or loss after taxes (positive, negative, or zero) A positive figure for Depreciation/Depletion/Amortization expenses A positive figure for current maturities of long-term debt
If the number of ratios used differed with the total number of firms reported in a column, the sample size is printed to the left of the array. If fewer than 10 ratios were available, the array was not printed. Ratio values are arrayed from the highest to the lowest positive and then from the lowest to the highest negative. Leverage Ratios Highly leveraged firms (those with heavy debt in relation to net worth) are more vulnerable to business downturns than those with lower debt to worth positions. While leverage ratios help to measure this vulnerability, it must be remembered that they vary greatly depending on the requirements of particular industry groups.
Fixed/Worth Computation: Fixed assets (net of accumulated depreciation) divided by tangible net worth.
Net Fixed Assets
Interpretation: This ratio measures the extent to which owner's equity (capital) has been invested in plant and equipment (fixed assets). A lower ratio indicates a proportionately smaller investment in fixed assets in relation to net worth, and a better "cushion" for creditors in case of liquidation. Similarly, a higher ratio would indicate the opposite situation. The presence of substantial leased fixed assets (not shown on the balance sheet) may deceptively lower this ratio.
Fixed assets may be zero, in which case the quotient is zero. If tangible net worth is zero, the quotient is undefined (UND). If tangible net worth is negative, the quotient is negative. The ratio values are arrayed from the lowest positive to the highest positive, undefined, and then from the highest negative to the lowest negative. NM may occasionally appear as a quartile or median for the ratios sales/working capital, debt/worth, and fixed worth. It stands for "no meaning" in cases where the dispersion is so small that any interpretation is meaningless.
Debt/Worth Computation: Total liabilities divided by tangible net worth. Total Liabilities
Interpretation: This ratio expresses the relationship between capital contributed by creditors and that contributed by owners. It expresses the degree of protection provided by the owners for the creditors. The higher the ratio, the greater the risk being assumed by creditors. A lower ratio generally indicates greater long-term financial safety. A firm with a low debt/worth ratio usually has greater flexibility to borrow in the future. A more highly leveraged company has a more limited debt capacity. Tangible net worth may be zero, in which case the ratio is undefined (UND). Tangible net worth may also be negative, which results in the quotient being negative. The ratio values are arrayed from the lowest to highest positive, undefined, and then from the highest to lowest negative. NM may occasionally appear as a quartile or median for the ratios sales/working capital, debt/worth, and fixed/worth. It stands for "no meaning" in cases where the dispersion is so small that any interpretation is meaningless. Operating Ratios Operating ratios are designed to assist in the evaluation of management performance.
% Profits Before Taxes/Tangible Net Worth Computation: Profit before taxes divided by tangible net worth and multiplied by 100.
Interpretation: This ratio expresses the rate of return on tangible capital employed. While it can serve as an indicator of management performance, the analyst is cautioned to use it in conjunction with other ratios. A high return, normally associated with effective management, could indicate an undercapitalized firm. Meanwhile, a low return, usually an indicator of inefficient management performance, could reflect a highly capitalized, conservatively operated business. This ratio has been multiplied by 100 since it is shown as a percentage.
Profit before taxes may be zero, in which case the ratio is zero. Profits before taxes may be negative, resulting in negative quotients. Firms with negative tangible net worth have been omitted from the ratio arrays. Negative ratios will therefore result only in the case of negative profit before taxes. If the tangible net worth is zero, the quotient is undefined (UND). If there are fewer than 10 ratios for a particular size class, the result is not shown. The ratio values are arrayed starting with undefined (UND), and then from the highest to the lowest positive values, and from the lowest to the highest negative values.
% Profit Before Taxes/Total Assets Computation: Profit before taxes divided by total assets and multiplied by 100.
Interpretation: This ratio expresses the pre-tax return on total assets and measures the effectiveness of management in employing the resources available to it. If a specific ratio varies considerably from the ranges found in this book, the analyst will need to examine the makeup of the assets and take a closer look at the earnings figure. A heavily depreciated plant and a large amount of intangible assets or unusual income or expense items will cause distortions of this ratio. This ratio has been multiplied by 100 since it is shown as a percentage. If profit before taxes is zero, the quotient is zero. If profit before taxes is negative, the quotient is negative. These ratio values are arrayed from the highest to the lowest positive and then from the lowest to the highest negative.
Sales/Net Fixed Assets Computation: Net sales divided by net fixed assets (net of accumulated depreciation).
Net Sales
Interpretation: This ratio is a measure of the productive use of a firm's fixed assets. Largely depreciated fixed assets or a labor-intensive operation may cause a distortion of this ratio. If the net fixed figure is zero, the quotient is undefined (UND). The only time a zero will appear in the array will be when the net sales figure is low and the quotient rounds off to zero. These ratio values cannot be negative. They are arrayed from undefined (UND), and then from the highest to the lowest positive values.
Sales/Total Assets Computation: Net sales divided by total assets. Net Sales
Interpretation: This ratio is a general measure of a firm's ability to generate sales in relation to total assets. It should be used only to compare firms within specific industry groups and in conjunction with other operating ratios to determine the effective employment of assets. The only time a zero will appear in the array will be when the net sales figure is low and the quotient rounds off to zero. The ratio values cannot be negative. They are arrayed from the highest to the lowest positive values. Expense to Sales Ratios The following two ratios relate specific expense items to net sales and express this relationship as a percentage. Comparisons are convenient because the item, net sales, is used as a constant. Variations in these ratios are most pronounced between capital- and labor-intensive industries.
% Depreciation, Depletion, Amortization/Sales Computation: Annual depreciation, amortization, and depletion expenses divided by net sales and multiplied by 100.
% Officers', Directors', Owners' Compensation/Sales Computation: Annual officers', directors', owners' compensation divided by net sales and multiplied by 100. Included here are total salaries, bonuses, commissions, and other monetary remuneration to all officers, directors, and/or owners of the firm during the year covered by the statement. This includes drawings of partners and proprietors.
Only statements showing a positive figure for each of the expense categories shown above were used. If the number of statements used in an array differs from the sample population for an asset size category, the number of statements used is shown in parentheses to the left of the array. When there are fewer than 10 ratios, the array is not printed. The ratios are arrayed from the lowest to highest positive values.
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