Question

how can I calculate industryaverage ratio

Answer 1

Industry Average Ratio is the ratio which is a BENCHMARK, which is the NORMALLY PREVAILING Ratio in that particular industry, calculated based on the top companies.

Steps to calculate Industry Average Ratio:

1) Pick Top 5 or 10 Companies of that Industry that are in the business since long time and are financially healthy and there is least risk of any uncertainity in near term.

2) Eliminate the companies having any kind of extraordinary(which is not normal) situation or item in recent time. For example, Merger or Acquisition or so.

3) Calculate the Ratios for all the remaining companies.

4) Calculate the Average of Ratios of All the companies. If required, calculate weighted average by logically giving appropriate weights. For example, if IT industry is studied, Google might be given higher weight.