CEOs often leave financial data to the experts. They’re dealing with strategic decisions like competitive advantage, growth, efficiency and profitability, and don’t concern themselves with small details, particularly when it comes to corporate finance. But the truth is, there’s opportunity for growth buried in public financial data.
Financial data is your eyes and ears on the street.
What if you could see exactly how your competition is investing its cash? How much liquidity that it’s sitting on? What if you could see that its primary innovations are coming through acquisition and not research and development? Looking through financial KPIs can provide you a roadmap of where your industry is going, and more importantly, what opportunities your competitors are seizing on.
Financial data can also be your strategic analysis partner.
If your company provides products and services to other public companies, you can use the data buried in 10-Ks and 10-Qs to evaluate the best business partners or potential customers. You can look at their growth, liquidity and potential as a long-term customer even before a contract is drafted. Or, you can evaluate the companies that are making an impact on your business and target those companies for sales and marketing.
Here are just a few unexpected places to evaluate your competitors in the marketplace, and what those metrics will tell you:
Capital Expenditure as a Percent of Sales. Is your competition increasing their scope or operations? Are they investing in growth? CAPEX indicates investment in anything from repairs to manufacturing build-outs or new office space. It could also indicate that a company is ready to invest in strategic assets or services that enhance growth, and if your company is a provider, then it could be a match made in heaven.
Capital Expenditure Coverage Ratio. This is your customer/competition’s operating cash flow divided by its CAPEX. It indicates whether a company is generating enough cash flow to keep up with investment expenditures. If your competition has a high ratio, it’s sitting on a lot of cash, or making money from its core operations. A low ratio indicates it may not be generating enough cash or its expenses are too high to be sustainable.
Net Profit Margin and Gross Profit Margin. These two metrics provide a window into the strength of your competition/customer. The gross margin is not an exact estimate of the company’s pricing strategy but it does give a good indication of profitability. A high gross profit margin indicates enough revenues (and ultimately cash) to pay additional expenses beyond the cost of goods sold (COGS), as well as future profits. The net profit margin takes into account all business expenses, not simply COGS, and is therefore a more stringent metric by which to measure profitability. It’s the infamous “bottom line” that every company cares so deeply about. Imagine if you knew your competition’s bottom line down to the dollar. How powerful would that be?
Intangible Assets. A quick scrub of the intangible assets belonging to a competitor or potential acquisition can highlight your own growth strategies. Are other companies investing in R&D? Are they purchasing trademarks? Are they acquiring companies in new markets? Maybe there’s a gap in their expansion plan where you can grab a foothold before they do!
Financial data is so much more than the report card of your own company’s health. It’s a wealth of growth strategy and quick market analysis. The smarter CEO recognizes the power behind the availability of this information. Many of these executives have longed for the day when global financial data is finally usable, accessible and can do more than live in a database somewhere. That day is today, and it means that it’s time to realize that every big picture is made up of small details that matter.
Emily Huang is the Co-Founder and CEO of idaciti.
Prior to founding idaciti, Emily co-founded Rivet Software, specializing in Financial Disclosure Management Software & XBRL. Rivet was acquired in 2014.