After reading this column’s title, you may be thinking I’ve stumbled upon the perfect oxymoron. For those of us in industry, there aren’t many requests of our time and effort that are more demoralizing than receiving the periodic governmental survey that comes with the bolded “Completion is legally required.” With all the other duties our positions entail, these requests are rarely embraced as value-added. However, on a recent survey request I was able to take something positive away from the endeavor. It was the United States Census Bureau’s (Census Bureau) Quarterly Financial Report (QFR) survey, and the positive takeaway was a variety of industry benchmarks and ratios.
The QFR takes the survey financial data and sorts and averages it into specific industry sectors. The survey includes industry data on manufacturing, wholesale, information, and professional sectors with an emphasis on manufacturing. The data was further broken down into classes and subsectors, and again into small versus large companies based on asset size. The detail is extensive. The Census Bureau updates this data on a quarterly basis, so the data is fresh. The QFR section of the Census Bureau website is easy to navigate, and it has a significant amount of data.
A colleague and I downloaded the QFR survey data from the Census Bureau website, both in Excel and a data-base format. The data had some ratios already calculated, plus we added some additional ones bringing the total number of ratios to about 25. The benchmarks covered the balance sheet, income statement, and cash flow aspect of each industry class and subsector. The ratios and benchmarks included balance sheet percentages by key assets, liabilities, and owners’ equity; income statement percentages by major revenue and expense categories; and cashflow percentages by key components in the areas of operating, investing, and financing percentages. Ratios in the categories of profitability, liquidity, and leverage were also calculated from the data. The cash gap analysis was performed for accounts receivable, accounts payable, and inventory. In total, it was a very comprehensive analysis.
After the survey data benchmarks and ratios were finalized, we were ready to compare them to company data. This part of the process is where the value-add comes into play. In my experience, finding comprehensive benchmarks and ratios in my company’s industry is not easy. It has been a matter of picking up individual benchmarks and ratios from a variety of industry sources and piecing it all together. The QFR is a convenient one-stop option.
If you choose to do this, as you lay out the industry survey data versus your company’s data, commit to looking at it objectively. The natural tendency is to discount any negative company-to-industry result as something wrong with the survey data, such as “The industry data is skewed toward companies much different than ours.” That is a natural, subjective bias. You may be correct, but at least give the data an objective analysis first before dismissing it.
The second step is to analyze the results in their totality, as the numbers are all somewhat connected. You need to become the number-listener: they are trying to tell you something.
The final and most important step is to take proactive steps within your organization to address the things that the analysis is indicating that you need to improve. Lay out your improvement initiative in total to make sure you are taking a full and comprehensive approach.
With the assistance of data analysis software Tableau, my colleague converted the ratios into a nice data visualization graphic package. We see access to this data as an excellent opportunity to update current company benchmarks versus the applicable industry, and to provide management and ownership with data in a format that paints a financial picture that is easier to understand then row after row of numbers. The best part is that the cost was only our effort to grab, scrub, and present the data.
Since the data is fresh (updated quarterly), free, and relatively easy to download, the QFR presents an excellent opportunity for proactive CPAs to share current relevant benchmark data with their company or clients. There is some upfront work, such as presentation, but once that is accomplished it may be as easy as the proverbial push of the button to update if accompanied by macros to grab and download the data. If done correctly, this presents an excellent opportunity to understand the industries in which our livelihoods depend and to better manage our companies’ direction.
Governmental surveys can be a pain to complete, but at least in this situation there is something of value to be gained. If anyone is interested in more information on what my colleague and I were able to do with the data described and what additional value we see, we would be more than happy to discuss it with you.
Timothy P. Dinan, CPA, is chief financial officer for John F. Martin & Sons LLC in Stevens, and was a member of the
Pennsylvania CPA Journal Editorial Board. He can be reached at email@example.com.