Take the Steps Towards Greater Profitability for Your Company

Take the Steps Towards Greater Profitability for Your Company

It may be hard to believe the impact a management tool can have on a company’s profitability. Printers and others in the graphic arts business demonstrate that the Printing Industries of America Ratios studies play a significant role in the growth and success of their companies.

By reviewing key information from the company’s operations, then measuring themselves against the most successful companies, Ratios participants found efficiency and productivity improvements that helped contain expenses, produce more billable work, and identify opportunities for revenue growth.

Boelte-Hall, LLC, a printer in Roeland Park, KS, has used the Ratios for years. The company participates in a printing industry peer group that benchmarks performance of its members verses the industry profit leaders each year. Boelte-Hall is proud to say that benchmarking helps the group. “Through careful monitoring and managerial direction, many of us have joined the elite top 25% of industry profit generators. Turning a profits is not easy, but tools like the Ratios absolutely help.” Steve Hall, Boelte-Hall.

According to Donald A. Pizzenti, CFO, Cohber Press Inc., “We use the Ratios study to compare ourselves against other printers of our size regionally and nationally. Although all printers are unique in their own way, it is amazing how the [data] in the study is extremely accurate and can be used to help make decisions.”

As you can see, these companies find tangible benefits from participating in the Ratios.  Whether you are a long-time user or new a practitioner—Printers can regularly compare themselves to companies from across the U.S. and Canada, of a variety of sizes, which produce a variety of graphic arts products: sheetfed print, web print, digital print, labels, newspapers, magazines, and books as well as general commercial print. There is even a series for binders.  What’s best, participation in the ratio program is free.

In fact, hundreds of companies have found that the Ratios helped their company become:

  • more efficient
  • more productive
  • more confident
  • more focused
  • better managed
  • and more profitable

All of which adds up to a company that is, on average, eight times more profitable than the competition! To most effectively use the PIA Ratio Studies as a benchmark, here are some tips.

Use industry standard formatting for your financial statements to facilitate comparison to and interpretation of the Ratio data.  An example of this standardized reporting format is as follows: 

List your Value Added (VA) calculation on the face of your internal financial statements.  VA = Sales – Material Costs. It reveals the actual value you added to the paper, the ink, the finishing, etc.  By excluding pass through expenses such as expensive paper or outside bindery costs, you will be able to focus on variations of in-plant manageable expenses such as factory expenses, factory payroll, and administrative/selling expenses that need to be tightly managed on every job.  For example:

Sample Industry Standard Financial Statement Based on Sales and Value Added

Amount

 

% of Sales

 

% of Value Added

Sales

$1,000,000

      100.00%    
Factory Cost of Product
Materials
Paper

195,600

       19.56
Other chargeable materials

51,500

         5.15
Outside Services

85,300

         8.53
Total Materials

332,400

       33.24
Value Added = Sales-$1.0 million less Materials-$332,400 =……………………………… …$667,600     100.00%
Factory Payroll

256,200

       25.62        38.38
Factory Expenses

170,800

       17.08        25.58
Total Factory Cost of Product

759,400

       75.94        63.96
Gross Profit

240,600

       24.06        36.04
Administrative and Selling Expenses
Administrative Expenses

100,300

       10.03        15.02
Selling Expenses

97,400

         9.74        14.59
Total Administrative and Selling Expenses

197,700

       19.77        29.61
Income Before Interest Expense

42,900

         4.29          6.43
Interest Expense

17,900

         1.79          2.68
Operating Income

25,000

         2.50          3.75
Other Income

5,100

         0.51          0.76
Income Before Income Taxes

30,100

           3.01%            4.50%

 

Calculate most of your Ratios as a % of VA, not as a % of Sales. Using VA as the basis of ratio calculation has historically provided a better benchmark for monitoring costs and profit. For example, most industry studies have shown that factory labor costs as a % of VA need to be at 40% or less if the company is going to be profitable.  Only material costs and outside services should be calculated as a % of sales.  See the Sample Financial Statement.

Compare your actual numbers to your budget as a benchmark using monthly financial statements and rolling income statements. To monitor expenses and control costs, compare your monthly financial statements to your budget.  Monthly financial statements provide clear and concise pictures that can be readily compared to budget and to industry standards.  There are limitations to the monthly statement, however; so we also recommend using a 3 to 6 month rolling income statement to monitor general corporate management costs and make timely decisions, particularly in today’s more volatile economy.

Compare yourself to the PIA Ratio Studies. The Ratios reports are structured by specialization area and printer size to provide highly accurate industry benchmarks. Compare your own business to average companies and to the profit leaders of your market niche. It will help you identify troublesome cost areas and set achievable goals.

About the Printing Industries of America Ratios Study

For more than 90 years, the Ratios program has been the leading financial benchmarking tool for the printing industry.  To participate go to www.printing.org/ratios.

About Margolis Partners 

Margolis Partners has long been recognized as the financial expert for family-owned businesses with a specialty in the printing, packaging and allied graphic communications industries, assisting thousands of companies with strategic and financial management, valuation, mergers/acquisitions, accounting, audit and tax services.  The firm is noted for its expertise in enabling companies to optimize profits.  Proudly, it is the purveyor of the industry’s Value-Added Principles of Management, and compiles the annual Printing Industries of America Ratios, the printing industry’s premier financial benchmarking tool.

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