Chapter 13
Comparing your financials to others

Dashboard instruments show truck drivers the “normal operating range” of various systems. Red lines indicate if the driver is overworking the engine.

But there is no red line on a financial statement to show you’re in danger of losing control. There’s no easy way to look at a financial statement and know if a company is in normal operating range, much less the danger zone. It’s up to the user of such reports to determine the “red line” for each company.

One way to develop a feel for normal ranges is to compare your company’s financials with those of other trucking companies. Obviously you can’t call your competitor and request a copy of his statements, but there are resources for this information.
Start with the RMA Annual Statement Studies, a compilation of industry averages of thousands of companies’ financial statements and ratios. The RMA guide lists at least three types of trucking companies: SIC 4213 (trucking except local trucking), SIC 4212 (trucking local without storage) and SIC 4214 (trucking local with storage). Truckload carriers always fall into SIC 4213, but they may also fall into the other two industry codes, depending on the nature of their operation. (RMA is phasing in the new classification standard, the North American Industrial Classification System, which has replaced SIC codes for most uses).To buy the study online, visit www.rmahq.org.

There are detailed sources of comparison data. Check out the “American Trucking Associations’ American Trucking Trends, Trucking Activity Report and Financial and Operating Statistics Series: Motor Carrier Annual Report.”

If calculating your own comparison sounds like as much fun as a trip to the dentist, ask an accountant to prepare an analysis of your company against industry averages. It’s more important to know how to interpret the analysis than how to prepare it.

If you want to try it yourself, however, you can prepare a spreadsheet or buy software specifically designed for this task. The simplest approach might be to set up your own balance sheet and earnings statement on a spreadsheet with a column next to the dollar amounts for the common size ratios. Express each asset as a percentage of total assets and each P&L category as a percentage of total revenues. Insert the comparable numbers from the RMA study in a third column. Then ask your accountant to compute the dollar equivalent of the average trucking company your size.

Suppose assets total $2.6 million, and the RMA average for your size company has accounts receivable at 29 percent of total assets. If your company has average A/R, it would total about $750,000. If your receivables are $950,000, or 37 percent of total assets, you should investigate. It might just reflect a fantastic month in sales — or it could mean that your management of accounts receivable is below average. If it’s the latter, you should review your credit-granting and other policies.

Comparing your company to some standard can make you question — and possibly improve — your financial practices and company policies. Getting to the root of higher-than-expected A/R, for example, might require better credit checking or receivable collection policies. You could trim $200,000 of the A/R and either deposit that much cash into the company’s checking account or lower your line of credit by $200,000. Lowering your line of credit, in turn, could add $18,000 to your bottom line by saving interest costs.

You can compare other key aspects of your financial performance to industry averages in the same way. The best users of financial statements read their reports and ask, “Could this number be better? If so, how?” Then, in cooperation with others within the company, they set benchmark targets and adjust company plans and policies to achieve those goals.

In Summary
Many users of financial statements are not content to simply read the numbers. They use financial ratio analysis to make comparisons over time and between companies. Ask your accountant to compute the most common ratios, and more important, tell you what normal operating ranges are.