ARM Industry Benchmark: Five Key Ratios Explained

January 4th, 2018

Far too often, owners struggle to assess opportunities for growth or investments back into their businesses because they lack the information needed to make informed, strategic decisions on how best to position their business for long-term success. Over the course of six months in early 2017, Kaulkin Ginsberg Company (KGC) contacted a number of accounts receivable management (ARM) companies, ranging in size from $5 million to $50 million in annual revenue with vastly different organization and business structures, about participating in an in-depth benchmarking process. These participants completed comprehensive surveys that examined their companies from a number of angles. In return, the participants received customized, comparative analysis reports on their respective company relative to the industry benchmark report.

Though this was a far from easy process, the KGC research team identified, and explained, five key benchmark ratios to assess company performance as you develop goals for 2018:

  • Return on Assets (ROA)
    2016 Industry Average: 18%
    In 2016, net income for ARM companies was roughly 18% of total assets. ROA examines how efficiently a company uses its assets to generate earnings, and is especially important for growth businesses or those looking to sell in the near future.
  • Current Ratio (CR)
    2017 Industry Average: 1.6x
    In 2016, current assets for ARM companies were roughly 1.6x the value of current liabilities. CR examines a company’s ability to pay short-term debt obligations and provides insight into its resource allocations.
  • Salaries Expense Margin (SEM)
    2016 Industry Average: 51%
    In 2016, SEM for ARM companies was approximately 51% of revenue. On a normalized basis, SEM shows the percentage of revenue that goes towards satisfying salary expenses, which is typically the largest expense line for ARM companies.
  • Debt-to-Assets (DA)
    2016 Industry Average: 78%
    In 2016, DA for ARM companies was nearly 78%. DA compares a company’s debt to its total assets, and indicates how much of a business is financed through debt, which can have a significant effect on the decision making process for creditors and investors.
  • Collectors-to-Supervisors (CS)
    2016 Industry Average: 7.8x
    In 2016, the ARM companies, on average, assigned 7.8 collectors to a single supervisor. CS provides information on collection department size relative to total supervisors, and is a great way to look at opportunities for improvement when compared to a company’s overall performance.

The information above, which is available exclusively through KG Prime Universal Membership, can be used to examine historical performance, view current industry trends, view your business through the lens of an investor, and more.

Due to the overwhelmingly positive feedback, KGC has decided to make this an annual initiative. To participate in the 2018 study, email us hq@kaulkin.com.

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