Benchmark

1. Business Temperature - a measure of the agreement between the company’s actual results and the established benchmark.

2. A benchmark is a reference performance indicator created under the logic and laws of business.

The growth of successful business indicators has a natural order in dynamics, independent of the subjective opinion of the analyst, for example:

Benchmark ordering	What it indicates
Profit earnings (income) rate > Revenue growth rate	Increased profitability and faster revenue growth compared to expenses
Revenue growth rate > Asset growth rate	Increasing the rate of turnover of funds invested in all types of property (assets)
Revenue growth rate > Growth rate of the number of employees	Growth in labor productivity
Equity growth rate > Asset growth rate.	Increased financial stability and reduced risk of non-repayment of borrowed funds
Current assets growth rate > Asset growth rate	Increased liquidity and ability to pay current liabilities
Operating cash flow growth rate > Earnings (income) growth rate	Expanding the ability to generate cash and increasing the share of cash(real) profit rather than accrued profit.

The comments in the «Key Issues» table present a complete list of Benchmark orderings we use.

Individual Benchmark orderings are combined into an extended benchmark, a fragment of which is presented as:

Operating cash flow growth rate > Earnings (income) growth rate > Revenue growth rate > Asset growth rate > Growth rate of the number of employees

We do not disclose the complete benchmark since this is our know-how. However, anyone interested can compile it by studying the «Key Issues» table.

Our benchmark differs from those traditionally used in online and offline financial analysis services. It determines how indicators should change over time relative to each other. For success, simple growth of indicators in dynamics is no longer enough; observing a particular order of their growth is necessary. It is stronger but natural criterion for a business's success and financial health. It will eliminate the distortion of the accurate picture of the business that is typical for standard methods.

We note separately, our benchmark can also work with negative and zero indicators, such as losses and negative equity. This is not available with traditional dynamic analysis.

3. Business Temperature measures the proximity of the actual dynamics of business indicators to the benchmark. We calculated it using a mathematical method (normalized Hamming distance between matrices).

It shows how much the actual dynamics of business indicators coincide with the reference one.

Business Temperature is an overall assessment of a company's financial health, considering all financial aspects - profitability, liquidity, financial strength, and cash flow. The closer the indicator is to 100%, the better the company's financial health.

Rather than looking at many individual indicators, business temperature provides a compact, more informative picture that helps assess how a company measures up against the criteria of a healthy business.

4. Key issues are indicators with the most significant number of Benchmark ordering violations. By ranking the indicators by the number of violations, a list of problems is generated, indicating their priority. This allows you to answer the questions clearly:

- What hinders business growth and drags it down?

- Which areas need intervention first?

- Where are additional attention and resources needed?

 

Unlike conventional approaches, where the answers to these questions are a subjective interpretation of the analyst, the Business Thermometer formally compiles a ranked list of problems. This approach eliminates subjectivity and multiple interpretations and reduces the risk of an erroneous decision.