Compare within the same industry

STEP 1Numbers speak with an industry accent

Just as the same word means slightly different things in different regions, the same ratio has a different "usual" level in each industry. First let's see why that difference arises.

So far we have calculated Robin Bakery's numbers one by one: a debt-to-equity ratio of about 67%, an operating margin of 12.5%, an ROE of 20% and a P/E of 15x. But you cannot tell from the numbers alone whether they are good or bad. Depending on what you compare with, the same number can be a compliment or a warning.

Ratios differ by industry because the way each industry makes money is different. Here are four examples.

So the first question when reading a ratio is not "is this number high?" but "what is usual for this industry?" The same goes for P/E. In industries whose earnings ride a cycle, P/E comes out very high when earnings are at the bottom and very low when earnings are at the peak. A P/E of 5x may not mean cheap; it may mean earnings are at the peak (the price cycle in Learn (Economics) Lesson 3).

STEP 2How to choose companies to compare

Half of a comparison is done once you choose the counterpart well. Narrow down by industry classification first, then filter once more by business mix.

A set of companies to compare against is called a peer group. The selection usually follows two steps.

1 Narrow down by industry classification. In Korea, industry categories based on Statistics Korea's Korean Standard Industrial Classification (KSIC) are used in disclosures and statistics, while overseas indices and brokerage materials use classifications such as GICS. Use this industry classification to pick the first candidates.

2 Filter by business mix. Even within the same "food" industry, a company that stamps out snacks in bulk at a factory and a company that bakes bread in its stores have different cost structures. Read the revenue mix and sales channels in 'II. Business Overview' of the annual report, as in Lesson 5, and keep the companies that make money in a similar way.

Let's build a peer group for Robin Bakery. We picked two fictional companies. Sunny Confectionery (fictional) makes snacks and mass-produced bread in a factory and supplies supermarkets, and Starlight Cafe (fictional) is a coffee-focused store chain. All three sell "bread and coffee," but their structures differ. In the figure below, switch the metric and line the three companies up side by side.

Put the three companies side by side and Robin Bakery's numbers look different. Its operating margin of 12.5% is far higher than Sunny Confectionery's (5%) or the industry average (4.5%). Then you have to ask why. Whether it is thanks to pricing power from selling its own baked bread at a premium (Lesson 13), or simply because it is still small and pays less rent, changes the picture ahead. Starlight Cafe's debt-to-equity ratio of 180% looks high, but if store leases are recorded as lease liabilities (Lesson 8), it is fairer to compare it with other cafes in the same industry.

P/E is the same. Starlight Cafe's revenue is growing quickly, so the market puts a high P/E (22x) on it, while Sunny Confectionery grows slowly and stays at 9x. As seen in Learn (Economics) Lesson 17, the more a company is expected to earn in the distant future, the higher its multiple. The starting point of comparison is to read it not as "the P/E is low, so it's cheap" but as "growth expectations differ."

STEP 3Side by side with the industry average

Now let's check what is "usual" for an industry using real statistics. The Bank of Korea publishes industry averages every year.

Each year the Bank of Korea compiles the financial ratios of externally audited companies by industry and publishes them as the "Financial Statement Analysis." These numbers are the standard industry average. We saw some of them in Lessons 10 and 14; this time you switch between debt-to-equity ratio and operating margin on one screen.

Debt-to-equity ratios range more than sixfold, from 47.1% for electronics, video and communication equipment to 315.7% for electricity and gas. Operating margins also differ greatly, with 15.0% for electronics, video and communication equipment and 2.0% for construction in 2025. This means that applying the same number to different industries can lead to opposite judgments. Robin Bakery's comparison line is food (debt-to-equity ratio 87.7%, operating margin 4.5%).

Also remember that industry averages move from year to year. As seen in Lesson 14, the operating margin of electronics, video and communication equipment went from −3.7% in 2023 to 15.0% in 2025. For industries that ride a cycle, comparing with the trend over several years is better than a single year's average. That is the topic of the next lesson.

Finally, let's practice guessing the industry. Look only at the shape of the ratios and pick which industry it might be.

Try it yourself: comparing Robin Bakery in three steps

Let's use everything you've learned so far at once. A comparison always goes in the order of industry average → similar companies → reason for the difference. First put it next to the industry average, then compare it with two companies whose business is similar, and finally look in the annual report for why the differences arose.

Robin Bakery, Sunny Confectionery and Starlight Cafe are fictional companies in this course. The food average is from the Bank of Korea "Financial Statement Analysis for 2025 (Preliminary)," and ROE, growth rate and P/E are left blank because there is no industry average on the same basis.

Step 1, compare with the industry average. Robin Bakery's operating margin of 12.5% is almost three times the food average of 4.5%, and its debt-to-equity ratio of 67% is lower than the average of 87.7%. The first impression is that, within its industry, profitability is high and debt is low.

Step 2, compare with similar companies. Sunny Confectionery, which mass-produces in a factory, has a margin of 5%, close to the industry average, while Starlight Cafe, which rents its stores, has a high debt-to-equity ratio of 180% because of lease liabilities. You can see that even within the same "food business," factory-type, store-type and directly operated bakery-type companies have different cost structures. For P/E, fast-growing Starlight Cafe is highest at 22x and slow-growing Sunny Confectionery is lowest at 9x. Robin Bakery's 15x fits with its margin and growth rate being somewhere in between the two.

Step 3, find the reason for the differences. Once you have confirmed the differences in numbers, look in the annual report for the "why." The judgment changes depending on whether Robin Bakery's high margin comes from products that can command higher prices, such as cake reservations (the revenue mix in Lesson 28), or from raw materials being temporarily cheap (the costs in Lesson 13). In the first case the difference can last; in the second it can disappear when raw material prices rise.

Find it yourself on DART

1 In the company overview that appears when you click a company name in DART, check the industry name. 2 In 'II. Business Overview' of the annual report, read the revenue mix and main products, and judge whether it is only an industry in name or a truly similar company. 3 For each candidate company, copy the numbers for the same year and the same basis (consolidated or separate) from the summary financial information in 'III. Financial Matters.' If the bases are mixed, the comparison goes wrong (Lesson 11).

How to use it in investing

Not always. An industry average is a number that bundles all externally audited companies, so it may differ from the picture of listed companies alone, and if one company spans several industries, it is hard to fit it to a single average. Comparison is not a standard for picking stocks; it is a tool that makes you ask why the numbers came out as they did.