Financial Ratio Benchmarks
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.​​
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​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.
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​Benchmarks considered in credit risk methodology
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Revenue Size
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Operating Margin (EBIT %)
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Debt / EBITDA
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EBTIDA / Interest Expense
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Debt / Tangible Net Worth
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Cash Flow From Operations / Debt
Supplemental ratios listed below are also displayed within CreditKernel, however not part of the credit rating methodology.
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Current Ratio
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Gross Profit Margin
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Net Income Margin
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Return on Equity
How we calculate industry financial benchmarks
1. Collect Industry Data
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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.
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2. Rank Financial Ratios
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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.
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4. Assign Scores
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The model compares the counterparty's financial ratio to the defined breakpoint values and assigns a score based on its rank within the brackets.
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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.
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5. Repeat for each ratio
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CreditKernel performs the ranking and scoring process for all financial ratios to build a comprehensive peer benchmark profile.
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Assessment​​​​​
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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. ​
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Let's now look at one specific industry benchmark evaluated during the credit assessment process, Revenue Size.
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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.
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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.
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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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