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Benchmarking

• A type of cross-sectional analysis in which the firm's ratio values are compared to those of a key competitor or group of competitors, primarily to identify areas for improvement.

 
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 Comps or comparables: Refer to pricing or evaluation Benchmarking efforts. In real estate the term is used to determine comparable properties for evaluation or assessment purposes. In the securities markets, the term has similar implications for pricing bonds, stocks, and derivatives. For credit instruments, it refers to isolating the key pricing characteristics. Among these, are issuer, type of collateral or issue, maturity, maturity to first option date, average life, duration, option adjusted duration and so forth. In the case of a simple corporate bond, it would benchmark to a comparable life treasury and adjust for credit rating and other pertinent risk factors by a spread. This spread would be added to the prevailing treasury and indicate what a fair yield would before the corporate. For equity type securities, the process would involve finding similar companies in the same industry with similar economic profiles and outlooks. Among the considerations would be utility stock or internet stock, growth prospects, cashflow, EPS, value per hit, and other determinative factors. Effectively, the process is pricing, marking-to-market, or evaluating by analogy.

<< Benchmark issues Beneficiary >>

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