Benchmarking

Definition

Benchmarking is the process of comparing a company's performance metrics to industry standards or best practices. It helps identify areas for improvement and implement strategies to enhance efficiency.

5 Must Know Facts For Your Next Test

1. Benchmarking can be internal, competitive, or functional.
2. It involves measuring key performance indicators (KPIs) such as liquidity, profitability, and operational efficiency.
3. Benchmarking helps in setting realistic financial goals and improving working capital management.
4. Trade credit terms can be assessed using benchmarking to ensure competitiveness within the industry.
5. Effective benchmarking requires accurate data collection and analysis.

Review Questions

• What are the three types of benchmarking?
• How does benchmarking help in managing working capital?
• Why is it important to benchmark trade credit terms?

Related terms

Working Capital:

The difference between a company’s current assets and current liabilities.

Trade Credit:

An agreement where a customer can purchase goods on account without immediate cash payment.

Key Performance Indicators (KPIs):

Metrics used to evaluate factors that are crucial to the success of an organization.