How can you evaluate your competitors' financial performance to improve your own financial strategy?

1 Identify your key competitors

The first step is to identify who your key competitors are and what their market share, positioning, and value proposition are. You can use various sources of information, such as industry reports, customer reviews, social media, websites, and press releases, to get a general overview of your competitors' strengths, weaknesses, opportunities, and threats. You can also use tools like SimilarWeb, Alexa, or SEMrush to compare your competitors' web traffic, keywords, and online presence.

2 Gather financial data

The next step is to gather as much financial data as you can about your competitors. You can use public sources, such as annual reports, financial statements, SEC filings, and stock market data, to find out their revenue, expenses, profits, assets, liabilities, cash flow, and other financial indicators. You can also use tools like Crunchbase, Owler, or Statista to access financial data and insights on private companies, startups, and industries.

3 Calculate financial ratios

The third step is to calculate and compare some key financial ratios that measure your competitors' financial performance and health. Financial ratios are numerical values that express the relationship between two or more financial variables, offering insights into profitability, liquidity, efficiency, solvency, and growth. These include the gross margin (the percentage of revenue that remains after deducting the cost of goods sold), the net margin (the percentage of revenue that remains after deducting all expenses, taxes, and interest), the return on assets (the percentage of net income generated by the total assets of a company), the return on equity (the percentage of net income generated by the shareholders' equity of a company), the current ratio (the ratio of current assets to current liabilities), and the debt-to-equity ratio (the ratio of total debt to total equity). All these ratios can help you understand how well a company uses its resources to generate profits and finance its operations.

4 Benchmark and analyze

The fourth step is to benchmark and analyze your competitors' financial ratios against your own and against the industry averages. This will help you identify your competitive advantages and disadvantages, as well as the gaps and opportunities in your market. You can use tools like BizStats, BizMiner, or Industry Norms and Key Business Ratios to access industry averages and benchmarks for various financial ratios and metrics.

5 Apply and improve

The final step is to apply the insights and findings from your competitor analysis to improve your own financial strategy and performance. You can use the information to set realistic and achievable financial goals, optimize your pricing and cost structure, improve your product or service quality and differentiation, enhance your customer retention and acquisition, and seek new opportunities for growth and innovation.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?