Comparison of Selected Financial Ratios for the Pallet Industry

This paper presents the results of a financial ratio survey conducted by the National Wooden Pallet and Container Association (NWPCA) in 1997 for the 1996 tax year. Financial information obtained from NWPCA member and nonmember firms was used to construct financial ratios and measures of business performance for the wood pallet industry. Ten ratios common to the NWPCA survey, Robert Morris Associates, and Dunn and Bradstreet were analyzed to determine similarities and differences among the three sources. Respondents reported combined sales in 1996 of $871 million 1996, or about 30% of the total value of shipments of $3,018.8 million reported for Wood Container and Pallet manufacturers (SIC 2448) in the 1996 Annual Survey of Manufactures. Respondents had combined assets of $314 million. Median sales were $3.0 million with median assets $1.1 million. The product mix of all respondents included new pallets (57%) used/rebuilt pallets (16%), boxes (11%), lumber (8%), byproducts, composites and “other” 7%. Project leader, USDA, Forest Service, Princeton, WV, and Head, Department of Wood Products, Mississippi State University, Starkville, MS, and formerly Senior Research Forest Products Technologist, USDA, Forest Service, Princeton, WV. INTRODUCTION In this paper we discuss results of a 1997 financial ratio survey of wooden pallet and container manufactures for the 1996 tax year. Data for this study are from tax forms filed with the Internal Revenue Service. The use of tax returns by the National Wooded Pallet and Container Association’s (NWPCA) Industry Demographics and Performance Information Task Force greatly simplified the survey and provided a degree of standardization among respondents not readily available by other means. Although ratio information is compiled and published by Robert Morris Associates (RMA) and Dunn and Bradstreet (D&B) among others, many NWPCA members believed that such information did not accurately or adequately represent their industry. As a result, we compared ratios from NWPCA respondents with those published by RMA (1997) and D&B (1997). THE SURVEY The NWPCA survey for the 1996 tax year was the most recent of three; the other two were conducted for 1994 and 1995 for the previous tax year. The 1994 survey was restricted to NWPCA membership, while the 1995 and 1997 surveys included both members and nonmembers. Because of the sensitive nature of the information collected, the NWPCA made no effort to identify respondents. Thus, it was not possible to sample nonrespondents to determine what, if any, bias might have been imposed on the results by respondents. Consequently, it is not possible to make definitive statements about differences across years, differences between members and nonmembers, or about the industry at large. RMA has stated that the ratios it publishes may not be fully representative of a given industry, and suggests, that they should be used “...only as general guidelines and in addition to the other methods of financial analysis.” Readers should exercise the same precautions with the NWPCA ratios in this study. Although more than 20 financial, employment, and capital investment ratios and measures were generated from survey data, comparison of NWPCA results with those of RMA and D&B focuses on ten ratios common to all three sources. Four of these are profitably ratios, one is a finance or leverage ratio, two are liquidity ratios, and three are activity ratios. All measures are reported as median values. The median represents that value about which respondents are equally divided, that is, half of the respondents reported larger values and half reported smaller values. A significant advantage of the median is that it is not unduly affected by very large or very small values. RESPONDENTS Questionnaires mailed to all active NWPCA members (390) and to about 2000 nonmembers in the spring of 1997 requested information from the firms’ 1996 tax return. Usable responses from both groups totaled 157; of these, 98 were from NWPCA members, and 59 were from nonmembers. More than 30% of the respondents are located in the North Central region (Fig.1). The Southeast region was next (24.8%), followed by the Northeast (19.1%), the South Central (8.3%), and the West (3.2%). Only two responses (1.3%) were received from the Intermountain region. These were combined in subsequent analyses with