QUESTION: UsingExhibit 12.9as a guide, compare C&C Sports' performance to the industry averages. What particular observations and recommendations do you have for George Douglas, president of C&C Sports?

EXHIBIT 12.9C&C Sports industry data

While it is relatively easy to determine C&C's industry under either the SIC or the NAICS system, that is not the case for many companies. ConsiderGeneral Electric, which you may think is in the light bulb business. GE does make light bulbs, but the company also makes locomotives, automotive bumper systems, aircraft engines, and magnetic resonance imaging (MRI) equipment. It even has a large financing division. No single SIC or NAICS code captures General Electric's business, nor that of any other conglomerate. Even smaller companies that operate in more than one distinct industry are difficult to classify.

Reality Check

Growing strong farms

Remember when your parents told you that drinking milk would help your bones to grow strong? Well, how does the dairy farmer who produces that milk help the farm to grow strong? One tool the farmer uses is financial ratio analysis.

After a financial crisis hit the farming industry in the 1980s, the Farm Financial Standards Task Force developed a set of financial statement guidelines that included 16 key financial ratios. The guidelines provided benchmarks against which farmers could compare their own performance. For instance, the task force recommended a current ratio of between 1.5 and 2.0, a debt ratio of less than 40%, and a debt-to-equity ratio of less than 0.67.

How does today's farm compare to these guidelines? An Iowa State University report on 22 beef producers found a high degree of variability among them. Though the farms' current ratios averaged 2.1, they ranged from a low of 0.4 to a high of 8.7. Return on equity averaged 9.3%, within a range of 8.1% to 45.9%.

Ratio analysis isn't limited to the farmers' financial statements, however. Dairy farmers can also monitor their performance by applying ratio analysis to their operational data. Two key measures for dairy farms are pounds of milk per cow (the benchmark is at least 17,500) and milk income per cow (the benchmark is at least $2,100).

Industry Statistics

Developing an understanding of a company's competitive environment is an important part of a financial analysis. Numerous resources are available to assist in this task. The U.S. government is a good source of industry data, much of which is available on the Internet. For example, the U.S. Census Bureau collects a wide array of statistics and makes them available on its website, http://www.census.gov/. Using the Census Bureau'sAnnual Survey of Manufactures, C&C's managers could determine the size of their market. Since this survey does not show baseball uniforms as a separate category, the managers must look at the market for men's and boys' team sports uniforms as a whole. As shown inExhibit 12.10, shipments of these uniforms have been somewhat cyclicalincreasing to 2003 and then falling to 2006, increasing to 2008 and then falling to 2011, and finally increasing to 2016. The decrease in shipments in 2009 was particularly dramatic, possibly a result of the general declining economic conditions in the United States and the resulting lower consumer disposable incomes.