How ProSight (RMA) Annual Statement Studies™ Valuation Edition Delivers More Precise Benchmarking

Valuators have eagerly awaited the release of the “ProSight Annual Statement Studies Valuation Edtion” every fall for years now. ValuSource has worked with ProSight (formerly RMA) for more than 30 years to provide the business valuation community access to the studies’ enhanced data, for use in both our valuation software and your own Excel spreadsheets.

“ProSight Annual Statement Studies – Valuation Edition” is the only financial statement database that includes decile data, providing a comprehensive view of industry-wide performance and the ability to rank individual companies. In addition to providing national common-size balance sheets, income statements, and ratios, the Valuation Edition lets you select from six different regions, so you can include the effects of regional economic activity in your analysis.

Below we dig into just why this data is truly the gold standard for useful, credible, and defendable financial statement benchmarking — and how our Valuation Edition lets you leverage the data more precisely and efficiently for your valuation reports.

How ProSight Builds Reliable Industry Financial Benchmarks

ProSight Annual Statement Studies is the only resource of private company financial data that hasn’t been subjected to algorithms, modeling, forecasting, or backcasting to create the dataset. From May through August each year, ProSight collects approximately 180,000 anonymized financial statements from commercial lenders, representing businesses across roughly 640 industries. Banks across the country submit their borrowers anonymized financial data directly to ProSight, ensuring the dataset is based on real, lender-reported company data.

That means the data contained in the Annual Statement Studies comes from real-life financial statements, not proprietary and undisclosed modeling methods that incorporate data from multiple sources. Equally important, ProSight breaks down the companies by assets and revenue so the common-size balance sheets, income statements, and ratios reflect size differences.

After the collection of the financials ProSight thoroughly aggregates, validates, and tests the submissions until they qualify as what ProSight calls “clean submissions.” The data is then processed and formatted to produce the Annual Statement Studies, where the data is grouped by NAICS (North American Industry Classification System).

For balance sheet and income statement data, ProSight standardizes each company’s financial statements within a NAICS industry group and then averages the results to create a clear industry benchmark. For financial ratios and percentages, ProSight calculates each ratio at the individual company level and summarizes the results using the 25th percentile (low), 50th percentile (median), and 75th percentile (high).

These quartiles divide the data into four equal groups and highlight the middle 50% of companies in an industry. Ratios that fall above the 75th percentile or below the 25th percentile may be considered unusual, helping users quickly identify outliers and compare company performance to typical industry ranges.

Important:

Important: Each item calculated is defined in the front matter of the Annual Statement Studies. In addition, each data point stands on its own — it’s not dependent on the other ratios or common-size.

Also, the Annual Statement Studies arrays ratios in an order from the strongest to the weakest — some are in ascending order, and some are in descending order. This reflects the fact that a higher ratio may be better in some cases (for example, sales-to-receivables), while lower ratios might be preferable in others (for example, debt-to-worth).

The Valuation Edition Decile Difference

As part of its processing for the Valuation Edition, ProSight calculates deciles for each common-size measure and financial ratio. These decile values are only available through ValuSource.

The additional percentile detail provides a more refined basis for comparison. Rather than describing a subject company’s metric as simply below average, average, or above average, the valuator can identify where that metric falls within the industry distribution between the 10th and 90th percentiles. This allows for a more precise assessment of relative performance and risk. 

ProSight’s Decile Methodology

ProSight uses a non-parametric method to calculate deciles. This means it doesn’t assume the data follows any particular distribution. Instead, it relies on the ranked sample data and interpolation between adjacent observations.

The process consists of the following steps:

1. Sort the data from lowest to highest.
2. Assign a percentile to each observation using the formula:

Pi = (i-0.5)/n

where (i) is the rank of the observation and (n) is the number of observations.

1. Identify the two adjacent ranked observations whose assigned percentiles bracket the target percentile.
2. Determine the relative position of the target decile within that percentile interval.
3. Interpolate between the two corresponding data values to estimate the decile value. 

Example

Assume the following ordered data set:

2, 3, 5, 7, 9, 12, 16

Note: This example uses seven data points for illustration only. It is not intended to suggest that seven observations are sufficient for statistically meaningful decile analysis.

With a sample size of (n=7), the percentile assigned to each observation is as follows:

Rank	Data Value	Percentile
1	2	0.0714
2	3	0.2143
3	5	0.3571
4	7	0.5000
5	9	0.6429
6	12	0.7857
7	16	0.9286

Using interpolation, the deciles for this data set are:

Decile	Value
10th	2.20
20th	2.90
30th	4.20
40th	5.60
50th	7.00
60th	8.40
70th	10.20
80th	12.40
90th	15.20

Illustration: Calculation of the 10th Decile

The 10th decile corresponds to the 10th percentile, or 0.10.

From the table above, the percentile immediately below 0.10 is 0.0714, corresponding to a data value of 2. The percentile immediately above 0.10 is 0.2143, corresponding to a data value of 3.

The first step is to measure the width of that percentile interval:

0.2143 – 0.0714 = 0.1429

Next, calculate how far the target percentile lies above the lower percentile:

0.10 – 0.0714 = 0.0286

Then express that amount as a proportion of the full percentile interval:

0.0286/0.1429 = 0.20

This indicates that the 10th percentile lies 20% of the way between the two surrounding observations.

The difference between the corresponding data values is:

3 – 2 = 1

Applying the 20% interpolation factor to that difference gives:

0.20 x 1 = 0.20

Adding that amount to the lower data value produces the 10th decile:

2 + 0.20 = 2.20

Accordingly, the 10th decile is 2.20, which matches the table above.

The same method is applied to each decile from the 10th through the 90th percentile: Locate the two adjacent percentile positions that bracket the target decile, determine the relative position of the target within that interval, and interpolate between the corresponding data values.

Example of Ranking Analysis Using ProSight Data

Below is an example of an Income Statement Common-Size Ranking schedule from the ProSight Annual Statement Studies Valuation Edition, in which the user enters summary financial statements, and the benchmark percentages and percentile rankings are calculated automatically. This analysis is also available in ValuSource’s Valuation Software, ValuSource Pro, and BVM Pro.

The schedule compares the Company’s common-size percentages to industry benchmarks for NAICS 441110 and shows where each item ranks within the industry range. In this example, Gross Profit ranks at the 60th percentile, Operating Expenses at the 44th percentile, and Operating Profit at the 75th percentile. Unlike a simple comparison to an industry average or median, the ranking analysis shows exactly where the Company falls among comparable companies for each measure, giving the valuator a much clearer basis for assessing performance and risk.

Comparison to Excel Percentile Functions

ProSight’s decile values may differ from percentile values calculated in Excel because the two systems use different valid methods for estimating percentiles from sample data.

ProSight assigns percentile positions to ranked observations using the formula Pi = (i – 0.5) / n and then interpolates between those positions to determine decile values. This approach is a median-rank style method.

Excel uses different built-in percentile conventions, such as PERCENTILE.INC and PERCENTILE.EXC, which determine percentile location differently. Because the underlying methods are not the same, Excel may return values that do not exactly match ProSight’s deciles, even when both are applied to the same dataset.

Accordingly, any difference between a ProSight decile and an Excel percentile calculation reflects a difference in calculation method, not an error.

Putting the Power of the Valuation Edition in Your Hands

The Valuation Edition displays the 10th to the 90th decile for every variable (you’ll notice the 50^th decile is equal to ProSight’s median). When you determine deciles are appropriate for your valuation, the additional data gives you a much clearer picture by ranking how the industry is performing, from the worst performers to the best. (Bear in mind that the 90^th percentile doesn’t necessarily correlate with the “best” — while it may be desirable for, say, profit metrics, it isn’t for metrics such as operating expenses.)

Even better, armed with the Valuation Edition’s decile information, you can use linear interpolation to determine the precise percentile for a subject company’s data point — say, 83% versus the round 80%. This is easy to do in Excel for your own analysis, or you can use ValuSource’s valuation software with ProSight data — or export ProSight data to ValuSource’s Excel Analyzer — to automatically generate financial statement ranking analysis.

This is where the real power of the Valuation Edition comes in. And, because there is total transparency for all the data, the process and calculations, including the ranking interpolation, you reinforce your credibility.

Only from ValuSource

The ProSight Valuation Edition is available exclusively from ValuSource. Click here for more information about this critical benchmarking data that you can use to instantly create ranking and benchmarking reports using ProSight’s Excel Analyzer, ValuSource software, or your own spreadsheets.