Financial Ratio Benchmarks

Leverage data driven insights to understand if your counterparty is underperforming, on par, or overperforming relative to industry peers.

Industry Financial Analysis

Industry Benchmark Values

Counterparty Value

Level up your credit review process by evaluating how your counterparty stacks up against its peers. Benchmarks help identify outliers, highlighting strengths or areas of concern.

The following counterparty financial ratios and their corresponding industry benchmarks are assessed as part of the rating process and displayed on the Credit Kernel report.

Benchmarks considered in credit risk methodology

Revenue Size
Operating Margin (EBIT %)
Debt / EBITDA
EBTIDA / Interest Expense
Debt / Tangible Net Worth
Cash Flow From Operations / Debt

Supplemental ratios listed below are also displayed within CreditKernel, however not part of the credit rating methodology.

Current Ratio
Gross Profit Margin
Net Income Margin
Return on Equity

Financial Analysis Benchmarks by Industry.PNG

How we calculate industry financial benchmarks

1. Collect Industry Data

Financial ratio data (ratios listed above) is gathered from companies within the same industry using reliable data sources. The peer data is cleaned and standardized; removing incorrect, incomplete, or corrupt data from the dataset.

2. Rank Financial Ratios

Next, we rank the collected financial ratios for a specific metric (e.g. Revenue Size, Operating Margin %, Debt / EBITDA) from best to worst within the industry.

3. Define Scoring Thresholds

Then, we divide the data into five percentile groups to create scoring brackets.

The breakpoint percentages (20%, 40%, 60%, 80%) are the same for all 67 industries.

The breakpoint values are unique to each of the 67 industries.

4. Assign Scores

The model compares the counterparty's financial ratio to the defined breakpoint values and assigns a score based on its rank within the brackets.

Ratios in the top 20% of the industry receive a score of 1, indicating the lowest risk, while ratios in the bottom 20% receive a score of 5, signaling the highest risk.

5. Repeat for each ratio

CreditKernel performs the ranking and scoring process for all financial ratios to build a comprehensive peer benchmark profile.

Assessment

Counterparties assessed as "Vulnerable" or "Weak" across multiple peer benchmarks are more likely to face financial challenges, increasing their risk of default. These counterparties often exhibit lower revenues, higher leverage, and minimal profitability margins, positioning them as "marginal producers".

Determining the "marginal producer" is part of the framework for how credit ratings are determined.

Not "One Size Fits All"

Credit professionals should take an industry specific approach to evaluating peer benchmarks because industries typically vary significantly by revenue size, cost structures, and supply and demand shifts, affecting profitability, leverage, and liquidity.

Let's now look at one specific industry benchmark evaluated during the credit assessment process, Revenue Size.

Revenues sizes across industries can differ drastically. Comparing a niche Chemical company to a multinational Retailer provides little insight into relative performance or risk. These type of market wide benchmarks may classify a counterparty as underperforming when it is actually well-positioned with its industry.

Below is a peer benchmark table illustrating 5 of the 67 industries available in CreditKernel. AS you can see, the revenue size thresholds vary by industry, highlighting the need for industry specific-assessments.

Figures shown in 000's

In summary, industry benchmarking enhances confidence in the credit assessment process by providing comparisons against-industry specific norms. It helps determine whether financial ratios reflect typical business behavior or indicate elevated risk.

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Can you customize risk thresholds to align with our internal risk policies or specific industries?

Yes. We understand that every business has distinct risk policies and industry dynamics. Our platform allows you to configure risk thresholds, ensuring alignment with your internal policies.
What types of risks does your model assess?

Our framework follows the fundamental truths of counterparty credit risk - Counterparty's operating.... In higher risk industries With fewer years in business With lower revenue and margins versus industry peers With higher levels of leverage versus industry peers With minimal liquidity ...carry a higher probability of default. As such, our model assess the following counterparty credit risks: Industry Risk Business Longevity Peer Competition Financial Risk Liquidity
What industries do you specialize in, and how robust is your benchmarking data?

CreditKernel provides benchmarking analysis for 68 industries. Each industry has a minimum of 10 peer counterparties.
What data inputs are required?

Users enter the counterparty's Standard Industry Classification (SIC) Code and spread a minimum of 11 financial statement line items.
What is the average turnaround time for generating credit scores and reports?

According to McKinsey & Company, a standard credit review takes 4 hours of an analysts time. Pain points include inputting financial statements, gathering industry and benchmark data, interpreting credit risk, preparing credit reviews, and aligning on risk appetite. More complex reviews can take up to 12 hours. Our standard credit reviews take less than 15 minutes.
Is there a free trial period?

Yes, we offer and welcome a free trial period. Let’s setup a quick call to ensure you get the most out of CreditKernel. Typically, after 5-10 credit reviews teams understand the solution.
What level of training or support do you offer for onboarding and ongoing use?

Onboarding is typically less than 5 days. Our team is here for you before, during, and after implementation. The platform does not require IT support nor do we assign a Project Team or Subject Matter Experts. For ongoing support, users have access to our “Credit in 5” videos. Each video is less than 5 minutes to cover topics such as rating model methodology, workflow, and each of the five credit assessment categories.
How secure is our data?

All data stored is encrypted at rest and in transit, following industry best practices. All data disks are encrypted at rest using Azure Storage Encryption, which uses server-side encryption to protect your data. Data in Azure managed disks is encrypted using 256-bit AES encryption. Data in transit is encrypted with Transport Layer Security (TLS) 1.3. This is to ensure privacy, authentication, and data integrity.