In the course of a given day, a bank loan officer might be asked to issue loans to a host of businesses ranging from a sheet metal shop to a day-care center.

Each industry is necessarily different in terms of its ultimate business and financial goal. An annual net profit margin of 4% for a sheet metal business could be cause for celebration, while that same margin at a day-care center would be cause for serious concern.

For the past 72 years, Robert Morris Associates has tried to give loan officers a benchmark from which to get a quick read on a variety of businesses by publishing "Annual Statement Studies."

This year's edition is a 906-page tome that compiles data supplied by associate member banks from 100,000 borrowers in 400 industries.

The book includes companies with total assets or total sales less than $250 million.

This book can be used "the same way all of us look at height and weight standards," said Martin "Dev" Strischek, president of Robert Morris and executive vice president of Barnett Bank of Palm Beach County. "It gives us a ballpark of where companies are, and lets us validate covenants."

New to this volume is a section on agriculture, including data from nine related industries.

"What agricultural lenders have relied on [to assess loan quality] is a plan for the coming crop year," said Tom Ripke, executive vice president at West One Bank in Boise, Idaho. Credit decisions have been made based on cash projections, which are affected by such things as purchases of equipment.

The "Studies" would indicate how a farm is performing relative to an overall national average.

"We want to make sure that our farmers have enough cash in their current assets to continue to be able to operate," said Mr. Ripke.

The average farm listed in the statement studies has 12 1/2% of assets in current inventory. If a farm had 40%, it might suggest close scrutiny from a loan officer.

"The pleasant surprise [with family farms] is that they make money," said Mr. Strischek. "This is not a perception most people would have."

A comparison of financial data in the 1994 volume from a sheet metal shop and a day-care center reveals the potential use of this tool.

The average pretax net profit margin for a sheet metal shop is 1.9%, while it is 6% for a day-care center. Similarly, the debt-to-owners-equity ratio is 1.6 for a sheet metal shop, and 2.6 for a day-care center.

"This means that a day-care center can support a higher leverage ratio than a sheet metal shop," said Lee B. Murphey, executive vice president and chief credit officer at First Liberty Bank in Macon, Ga.

To be sure, there are limitations to this tool.

Executives at Morris Associates point out that the best use of this tool is for the individual transaction-based decision, rather than for decisions about the overall loan portfolio.

Bankers caution against exiting industries that have comparatively lower profit margins than others.

Additionally, the data are averages, not thresholds for loan issuance. Regional conditions for some industries may be more significant than national trends.

"We don't use the information to say that if you don't measure up to the averages, we won't make a loan to you," said Mr. Ripke. "The averages let us focus on those things that need to be understood or explained better."

Although the year-to-year trends in such things as profit margin interest bankers, they are not leading indicators. The information is a year old, and is more of a historical record that can provide a perspective on the present than an accurate forecaster.

"The five-year trend gives you a good picture of what typical line of business looks like as it moves through a recession," said Mr. Strischek.

To look at some of the macroeconomic historic trends, however, Mr. Strischek advises purchasers to look closely at any industry that has a category buster.

He sees large chains like Home Depot and Wal-Mart cutting into the profits of such staple small business borrowers as home furnishings, home electronics, hardware, and drug stores.

Profit Margins

Profit before tax as a percentage of sales for companies with less than $250 million in assets and sales.

Vegetable farms

7.4%

Auto repair

3.5%

Engineering and architecture

3.7%

Airports and terminal services

2.4%

Source: Robert Morris Associates

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