Dipesh Jain Title Page

Key Financial Indicators Benchmarking

Case & Homework Assignment

Master of Business Administration & Engineering

Dipesh Jain
-
Matriculation number: s0581383

Date:
Berlin, 29.10.2021

Guided By:
Prof. Dr. Thomas Rachfall

Quality in applied research Ⅰ

Dipesh Jain Abstract

ABSTRACT

Key Financial indicators (KPIs) are the base on which organizations are evaluated for their
profitability and success rate. Not all KPIs are the same. Importance of certain KPIs depends
upon the company and its field of market. Selecting the appropriate indicators to evaluate
different companies from different fields is of great significance. Comparing different
companies using these indicators, as a method to find sector of improvement is called
benchmarking. This assignment evaluates various KPIs of 6 top companies in global market
along with carrying out their financial rating and benchmarking them to identify the best-in-
class company.

Keywords: Key financial indicators, benchmarking, finance rating, scoring model, quartiles.

Quality in applied research IⅠ

Dipesh Jain List of Abbreviations

LIST OF ABBREVIATIONS

KPIs: Key Performance Indicators

ROI: Return on Investments

EBIT: Earnings before Interest and Tax

EBITDA: Earnings before Interest, Tax, Depreciation and Amortization

Quality in applied research IIⅠ

Dipesh Jain Index of Formulas

INDEX OF FORMULAS

𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
1. 𝐷𝑒𝑏𝑡 𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑎𝑡𝑖𝑜 = 𝑇𝑜𝑡𝑎𝑙 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 𝐸𝑞𝑢𝑖𝑡𝑦
𝐸𝐵𝐼𝑇
2. 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐶𝑜𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑎𝑡𝑖𝑜 = 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒
𝐸𝐵𝐼𝑇
3. 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑀𝑎𝑟𝑔𝑖𝑛% = ∗ 100
𝑆𝑎𝑙𝑒𝑠
𝐸𝐵𝐼𝑇
4. 𝑅𝑂𝐼% = ∗ 100
𝑇𝑜𝑡𝑎𝑙 𝐵𝑜𝑜𝑘 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
𝑇𝑜𝑡𝑎𝑙 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
5. 𝐷𝑎𝑦𝑠 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 = ∗ 360
𝑆𝑎𝑙𝑒𝑠

Quality in applied research IV

Dipesh Jain Table of Contents

TABLE OF CONTENTS

ABSTRACT………………………………………………………………………………….. Ⅱ

LIST OF ABBREVIATIONS.……………………………………………………………….. ⅡI

INDEX OF FORMULAS……………………………………………………………………..IV

TABLE OF CONTENTS…………………………………………………………………….. V

1. KPIs…………….………………………………………………………………….….…. 01

2. FINANCE RATING………………………………………………………………….......01

3. BENCHMARKING & SCORING….…………………………………………………... 02

4. COMPARABILITY & INSIGHTS……………………………………………………... 03

5. CONCLUSION…………………………………………………………………………. 03

REFERENCES……………………………………………………………………………… VI

Quality in applied research V

Dipesh Jain Homework

1. KPIs

The following 5 KPIs have been calculated as per the given formulas in the class.

2. FINANCE RATING

Days Account Receivables represents the average no of days its takes for the company to
convert credit sales in cash. A lower Days account receivable ratio shows that company gets
cash in hand faster and can utilize it for further operational expenses. Hence, I have come up
with the following rating solution:

Quality in applied research 1

Dipesh Jain Homework

3. BENCHMARKING & SCORING

Debt Equity Ratio Interest Coverage Ratio Operating Margin

ROI % Days Acc Receivables

Weighted Scoring Results

Quality in applied research 2

Dipesh Jain Homework

4. COMPARABILITY & INSIGHTS

The best way to compare two companies is by comparing their Net profit margin or the financial
ratios. Comparison becomes easier when you compare companies of similar field. For example,
John Deere and Caterpillar are both companies that sell Agricultural and heavy machinery. Both
companies have almost similar Sales per year, and similar EBIT data. However, Caterpillar
faces hard time converting credit to cash and hence lacks behind John Deere. Dow falls under
similar category as it sells industrial equipment’s and materials, but a direct comparison cannot
be made.

Similarly, Walmart and Metro are grocery sellers. However, Walmart works on a really large
scale as compared to Metro which can be seen by the difference in their Total Book Capital.
The Home Depot has the highest ROI% among all the companies. Its shows that it sells its
products with a high profit margin as compared to its peers.

The success of a company depends on a lot of factors. By just looking at the financial figures
we can derive that a company’s success over its peers can be based on the trust of the
shareholders on the company’s finances, its market recognition, the capital invested in advances
for the future, Dividends to the shareholders, etc.

5. CONCLUSION

The calculated KPIs, Financial Rating and the scoring model identified the best-in-class
company among the 6 companies given. However, the scoring model is subjective and may
vary according to the company’s industry type. Overall, a company can be judged and evaluated
with the help of some powerful financial indicators. The discussed financial criteria are not
exhaustive and form a small portion of the vast number of financial criteria which can be used
to choose the right company.

Quality in applied research 3

Dipesh Jain References

REFERENCES

https://www.wsj.com/market-data/quotes/WMT/financials/annual/balance-sheet
https://www.wsj.com/market-data/quotes/DOW/financials/annual/balance-sheet
https://www.wsj.com/market-data/quotes/CAT/financials/annual/balance-sheet
https://www.wsj.com/market-data/quotes/DE/financials/annual/balance-sheet
https://www.wsj.com/market-data/quotes/XE/XETR/B4B/financials/annual/balance-sheet
https://www.wsj.com/market-data/quotes/HD/financials/annual/balance-sheet
https://www.macrotrends.net/

Quality in applied research VI