When two figures from different companies can be compared

A manager who wants to know how the company stands against its industry usually takes a familiar figure, such as margin or days of receivables, looks it up for other companies, takes an average and checks whether they land above or below it.

The trouble starts before the average. Two figures with the same name can measure different things, and part of the gap in the table may come from the way each company measures.

SectorNova, XPTNova’s line of work on companies and industries, deals with that earlier question. It gathers what Colombia’s public registries and superintendencies publish, keeps the source of every figure and, before comparing, says whether the two values measure the same thing.

Why two figures with the same name measure different things

The most common differences show up in four places.

• Scope. One company reports consolidated financial statements, subsidiaries included, and another reports standalone statements. The first company’s revenue includes businesses the second one doesn’t have.
• Accounting standard. One company applies full IFRS and another IFRS for SMEs, with different rules for recognizing and measuring some items. Some sources collect the same form from every entity they oversee and don’t publish which standard each one follows.
• Period. Books usually close on the calendar year, while a school runs on an academic year that may go from August to June. Setting revenue for a fiscal year next to enrollment for a school year mixes two periods.
• Type of service. An outpatient clinic with no beds and a hospital with inpatient care are both listed as healthcare providers, yet their cost structure and administrative staff reflect very different operations.

There is a fifth, harder to spot, which is what each company books in each account. At schools, teacher salaries can go to cost of sales, administrative expense or selling expense, and some institutions put everything under administration.

If administrative expense is compared as published, those institutions show the highest administrative spending in the group, even when the gap lies in how they book it. The comparison that holds up in that case is total operating cost.

The same happens with industry-specific ratios. In Colombian healthcare, a payer’s objection to part of a claim and the return of a whole invoice are separate procedures. A foreign denial rate that lumps the two together can’t be set beside a Colombian rate that counts objections alone.

Who a company is compared against

The second step is choosing the comparison set. An industry-wide average mixes large and small companies from different regions offering different services, and the result depends more on which companies went in than on how each one performs.

SectorNova builds groups of similar companies using attributes management doesn’t control, such as size, region and the type of service provided. Management outcomes, such as margin or receivables turnover, stay out of the criteria, because they are precisely what is being compared.

Each group comes with its criteria, its members, its size and its spread, so whoever uses it can accept it or change it. Excluded companies are listed with the reason, such as having stopped reporting.

The group also says who the source can’t see. In several industries, commercial companies operate alongside nonprofits, and nonprofits don’t report to the superintendency that publishes companies’ financial statements. A group of schools built from that source covers only those set up as companies, and the answer says so.

Degrees of comparability

With the figures and the group in place, SectorNova checks each pair of values. It looks at the definition, scope, unit, currency, accounting standard, period and source of each one, and the result falls into one of these degrees.

• Equivalent, when the two figures match on everything that sets them apart and can be compared as they are.
• Convertible, when they differ in unit, scale or currency and there is a rule to bring them to the same basis, such as pesos against thousands of pesos, or current pesos against constant pesos.
• Reconcilable, when one figure contains the other and the difference can be explained, such as a company’s consolidated statement against its standalone one. They are shown together with the reconciliation, without subtracting one from the other.
• Close for a stated purpose, when someone on the team reviewed the difference and accepted it for a declared use. The comparison holds for that use and for no other.
• Not comparable, when they differ with no rule or decision to bridge them. The answer says where they differ and what would be needed to compare them.
• Undetermined, when the source doesn’t state something needed to decide, such as the accounting standard. If both figures come from the same source and both lack that detail, they are compared with a caveat.

Every degree comes with its reason. Someone who reads “not comparable” knows whether the difference lies in scope, standard or period, and can look for the missing detail or change the question.

What you get back

Every answer carries the figure, the source that published it and the period it covers. When there is a comparison, it also carries the group with its criteria and the degree of comparability with its reason. The same question always returns the same answer.

For the manager of a mid-sized company, that means finding their place among companies that actually resemble theirs and telling management differences apart from measurement differences. For a fund partner studying a company, it means checking the comparables before using them in a valuation or in a conversation with management.