An efficient market economy, says Matt Pinnuck, needs to be able to allocate capital where it can be used to its best advantage by the best performing entities.

In deciding on these allocations, data and research are crucial. Beyond the regular financial metrics reported by entities and an analysis of the share performance of listed entities, another key tool is benchmarking.

Pinnuck, the professor of Financial Accounting in the Department of Accounting at the University of Melbourne, is one of the authors of an annual benchmarking study on the performance of Australian and New Zealand listed entities, published in collaboration with CA ANZ and the University of Queensland.

2024 benchmarking report out now

The 2024 edition, the fourth in the series, has recently been published. It aggregates and analyses data on all ASX- and NZX-listed entities from a database managed by global ratings agency Standard & Poors.

These benchmarks are categorised into high, normal, and low values, based on data from two benchmark periods – 2015–2022 and 2023.

Benchmarks are produced for every Global Industry Classification Standards (GICS) sector and, for Australia, these are further divided into four size categories – large, medium, small, and micro – within each GICS sector.

“We benchmark entities against the sector they operate in, so as an example we compare supermarkets with other supermarkets,” says Pinnuck. “And we also compare entities by size, so we group micro caps together and analyse them, and do the same with the larger corporate segments.”

Global comparisons

Another dimension of analysis comes from benchmarking Australasian entities against those in the rest of the world; repeating the exercise on a yearly basis has created an opportunity for time-series analysis to see how metrics have changed.

Pinnuck says the report is increasingly being used by investors, lenders, regulators, and the entities themselves to better understand the drivers of their performance and productivity, and how they rate competitively against their peers.

It is also finding readers in the tertiary sector, among teachers and students of business and accounting.

The analysis is wide-ranging and looks at income statements and financial performance. Balance sheets are benchmarked in several categories such as working capital management, capital investment, capital structures, and liquidity.

Audit fees and climate-related risks

There are also benchmarks for audit fees and the impact of climate-related risks on statutory reporting.

On audit fees, for example, the research showed a “significant increase” in the annual median percentage change in audit fees in 2023, the last year under analysis, compared with the historical coverage from 2015–2022.

The report also looks at how climate-related risks are impacting financial statements. The 2024 edition found that 34% of Australian entities and 40% of those in New Zealand mention climate, compared with a global figure of 34%.

High levels of Australian investment in the mining and metals sector in 2023 saw the overall median profitability of Australian entities outperform the rest of the world, although on an equal-weighted basis, median Australian profitability has historically been lower.

Supply chain issues have been brought to the fore in recent years due to inflationary pressure and transport disruption, and the report looked at gross profit margins over time. The finding was that there hadn’t been a marked change, and the authors of the benchmarking report stated there was “no evidence of an ability to pass on cost increases”.

Allocating resources most efficiently

“It doesn’t necessarily provide all the answers, but it is an excellent catalyst in identifying the right questions and putting the performance in a number of valuable contexts,” says Pinnuck.

“In allocating resources to more profitable firms, we need to know what the norms are and how they change, and what challenges entities are facing in their supply chains and cost structures.

“So, there is a wider productivity benefit in the lessons of benchmarking, because it can help allocate resources to areas of higher productivity and make the economy more efficient.”

CA ANZ partners with academics from the University of Melbourne and the University of Queensland to produce an annual series of benchmarking reports on listed Australian and New Zealand entities.

The 2024 editions were published in August, giving a wide range of stakeholders a unique tool for assessing company performance.

Read the 2024 CA ANZ Australian Financial Reporting Benchmarks and Research Insights and New Zealand Financial Reporting Benchmarks and Research Insights reports here.