Comparison with Industry Averages
Midwest Inc. is a medium-size company that has been in business for 20 years. The industry has
become very competitive in the last few years, and Midwest has decided that it must grow if it is
going to survive. It has approached the bank for a sizable five-year loan, and the bank has
requested Midwest’s most recent financial statements as part of the loan package.
The industry in which Midwest operates consists of approximately 20 companies relatively
equal in size. The trade association to which all of the competitors belong publishes an annual
survey of the industry, including industry averages for selected ratios for the competitors. All
companies voluntarily submit their statements to the association for this purpose.
Midwest’s controller is aware that the bank has access to this survey and is very concerned
about how the company fared this past year compared with the rest of the industry. The ratios
included in the publication and the averages for the past year are as follows: