| Before making a purchase or investing money in a | | | | competitive pressures within an industry. An |
| company, a wise investor want to have more | | | | investor or business owner should pay great |
| information about your competitive environment, | | | | attention to this performance indicator, because it |
| i.e. the state of your company within your chosen | | | | varies from industry to industry. A retail company |
| industry. The first information you will be asked | | | | could operate within 7-8%, when a telecom |
| for is the business annual report. This is not a | | | | company could achieve 20%. Checking the trend |
| coincidence; the annual report can be used to get | | | | of this performance, each year, will provide useful |
| at the bottom of the following: Level of sales | | | | insight into what's happening. If you want to |
| Return on capital Net operating margins | | | | invest in a start-up technology company, you do |
| The annual report typically has all the current, | | | | not want to compare it to a retail organisation. |
| past and future financial accounting information. | | | | You should compare organisations within the same |
| This source is very useful in identifying different | | | | industry. |
| performance indicators relative to your | | | | Recent corporate scandals have shown that |
| competitors. | | | | relying on the annual report alone is suicidal. |
| 1. Level of sales The investor or probable business | | | | Companies could inflate these numbers or omit to |
| partner should be able to gain an insight from | | | | show financial liabilities in the balance sheets. In the |
| your sales figures and analyse whether your | | | | end you will end up purchasing a company full of |
| company is doing well compared to other | | | | debts. Always look into other companies annual |
| companies or not. Is your market shares | | | | reports before making a decision. |
| increasing or decreasing, and in which geographic | | | | Also, when comparing companies within the same |
| locations you are making more sales? The sales | | | | industry, people should use caution. For example, a |
| figures are an indication of the business current | | | | company may be in software designs and the |
| state of health. However other information such | | | | competitor organisation in IT services. They are in |
| as the overall size of the market and what is | | | | the same industry, but with major differences in |
| happening in your industry should help during | | | | activities and over time the volume of sales in |
| analysis. | | | | each company could be distorted by inflation. |
| In the annual report, your investor will be able to | | | | Finally, each country, UK, USA, or France has |
| understand the structure of your industry. For | | | | different accounting practices, particularly when it |
| instance how many players are dominating the | | | | comes to return on investment and net operating |
| market and the prospect of it? If you are an | | | | margins. So it wouldn't be wise to compare |
| investor interested in investing your money in a | | | | companies based in different countries, without |
| company, but need more information on a | | | | taking into account those differential factors. Even |
| particular market, it is advisable to look for | | | | tough some other national factors could play a big |
| organisations such as the Competition Commission | | | | role (i.e. the growth of the telecom sector in |
| reports (UK). A business owner will also find | | | | Africa is different to that of Europe). |
| valuable information on an industry and the major | | | | The annual report would contain other valuable |
| players within. | | | | information other than the three mentioned |
| 2. Return on Capital This performance indicator will | | | | above. All of them are important in assessing the |
| provide a measure of your business competitive | | | | company competitive issues within a market; for |
| advantage. A for-profit organisation has for duty | | | | example, the level of advertising budget. Some |
| to make profits if it is to survive. Therefore the | | | | companies spend more money on advertising, |
| return on capital will show if the company is | | | | hence the high level of sales, and others do not, |
| maintaining a realistic return on investment and | | | | but have a higher profit margin. A chocolate |
| measure it to competitors... This indicator is | | | | company in the Fast moving consumer goods |
| available in the annual report. | | | | (FMCG) market will tend to have a huge |
| 3. Net Operating Margins Also called net profit | | | | advertising budget, same for a pharmaceutical |
| before interest and taxation, is an indicator of | | | | company. |