Interpreting Industry Averages and Trends
Evaluating a ratio that describes a particular company in terms of the industry average for that ratio can be informative, but it can also be misleading. Consider one commonly reported indicator, the Price/Earnings (P/E) ratio.
Suppose that you know, from examining stock exchange tables in the newspaper or online or from some other source, that the P/E is 10 for a communications firm that you have some interest in. This means that stock in the company presently sells for 10 times its earnings. Perhaps you also know, by information obtained from a commercial service that the average P/E for the telecommunications industry is 15. At first glance, 10 looks like a good P/E, compared to the industry average: ...
Get Business Analysis with Microsoft® Excel, Second Edition now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.