Applied analysis
Benchmarking against peers
Put Rawdah's ratios next to its peers', use medians, and turn the gaps into SAR.
Learning objectives
- Build a peer table on consistent definitions and calculate peer medians
- Calculate a company's gap to the median on each metric and say whether it is good or bad
- Convert a working-capital gap into the cash it ties up
A ratio on its own says little. Is a 12.5% EBITDA margin good for a furnishings retailer? Is 22.2 days of receivables normal? Trend analysis compares Rawdah with its own past; benchmarking compares it with businesses facing the same customers, suppliers and costs. Together they separate company-specific problems from industry conditions.
This lesson uses Rawdah's five listed peers (fictional, like Rawdah): two home-furnishings and home-improvement chains, an electronics retailer, a specialty retailer and a department-store group. Five companies is a typical comparable set: big enough to show a pattern, small enough that every peer is relevant.
Three rules make a benchmark fair:
- Same definitions. Peers' DSO and DIO here use average balances and 365 days, exactly like Rawdah's. If a data provider computes DSO on year-end receivables, recompute it or the gap is an artefact.
- Same period and basis. Latest fiscal year for everyone; reported (or adjusted) EBITDA consistently.
- Median, not mean. With five peers, one outlier moves the average a lot. The median (the middle value) is robust; the interquartile range shows the spread.
Included with a Formula Quest membership
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