How can I compare a business’s financials to its industry in Canada?

During diligence, a buyer may want something to set the seller’s statements against. Two public sources can serve that purpose. Innovation, Science and Economic Development Canada (ISED) publishes the Financial Performance Data tool, and Statistics Canada publishes industry tables. Neither says anything about the business in front of you. What they can do is show you which questions to put to the accountant who is reviewing the numbers, as part of financial due diligence.

What the ISED tool reports

ISED says its reports show the number of businesses in the selected industry, statistics for profitable and non-profitable small and medium-sized businesses, detailed revenue and expense data, industry averages for income statement and balance sheet items, and financial ratios. The reports are representative of businesses in the chosen industry and geographic area that fall within the total annual revenue ranges ISED sets out, and are grouped by total revenue and by profit margin. ISED’s own glossary shows industries chosen by NAICS code, with figures split into four quartile groups. ISED says the data is published using Statistics Canada data. See Financial Performance Data.

Statistics Canada industry tables

Statistics Canada publishes industry tables of its own. Its “Consulting services, summary statistics” table, for example, names the Annual Survey of Service Industries as its source and lists NAICS as its classification. That table shows its own notes, reference period and release date, so read those before borrowing a number from any table.

Where averages stop being useful

ISED cautions that comparing its data with other departmental data is uncertain because of differences in methodology, interpretation and data sources. Its glossary adds that displayed values are still subject to factors such as imputation, where records with missing data are assigned values. BDC says that what counts as a healthy ratio depends on the industry, and that for profitability ratios a common analysis tool is cross-sectional analysis, which compares the ratios of several companies in the same industry.

Questions for your accountant

• Which NAICS code and revenue group fit this business, and does it earn money from activities that sit under more than one code?
• Do the seller’s statements define each ratio the way the ISED glossary does?
• Is the reference data from a different period than the statements being compared?
• Where this business differs from the reference group, is the reason documented in the seller’s records?
• Which of these comparisons does the accountant consider reliable enough to rely on, and which should be set aside?