Business
Industry Classification
Industry classification is a system used to categorize businesses into different sectors based on their primary economic activity. This classification helps in organizing and analyzing economic data, understanding market trends, and comparing companies within the same industry. It is commonly used by investors, analysts, and policymakers to make informed decisions and assess the performance of businesses.
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11 Key excerpts on "Industry Classification"
eBook - PDFInvestments
Analysis and Management
- Gerald R. Jensen, Charles P. Jones(Authors)
- 2019(Publication Date)
- Wiley(Publisher)
372 Chapter 14 Sector/Industry Analysis What Is an Industry? At first glance, the term industry may seem self-explanatory. At its most basic, an industry consists of a group of companies primarily engaged in producing or han- dling the same products or in rendering the same services. Everyone is familiar with the auto industry, the pharmaceutical industry, and the electric utility industry. But are these classifications as clear-cut as they seem? Apparently not, because while we have had Industry Classification schemes for many years, the classification systems continue to evolve. Furthermore, investment advisory services and popular press sources use different classification systems. Classifying Industries For more than 60 years, the Standard Industrial Classification (SIC) system was used to classify firms into industries. 3 SIC codes brought order to the Industry Classification problem by providing a consistent basis for describing industries and companies in as broad, or as spe- cific, a manner as desired. Nevertheless, the SIC system was criticized for not being able to handle changes in the U.S. economy. This led to the development of the North American Industry Classification System (NAICS), which replaced SIC codes in 1997. The NAICS Classification System The North American Industry Classification System (NAICS) is a significant change for classifying economic activities. It was developed using a production-oriented conceptual framework; whereby, companies are classified into industries based on the activity in which they are primarily engaged. Basically, companies that do similar things in similar ways are classified together. NAICS uses a six-digit hierarchical coding system to classify all economic activity into 20 sectors, which provides greater flexibility relative to SIC codes. Fifteen of these sectors are devoted to services-producing sectors compared to five sectors that are mainly goods-producing sectors.
eBook - ePubInvestments
Principles of Portfolio and Equity Analysis
- Michael McMillan, Jerald E. Pinto, Wendy L. Pirie, Gerhard Van de Venter(Authors)
- 2011(Publication Date)
- Wiley(Publisher)
4. Industry Classification SYSTEMSA well-designed classification system often serves as a useful starting point for industry analysis. It allows analysts to compare industry trends and relative valuations among companies in a group. Classification systems that take a global perspective enable portfolio managers and research analysts to make global comparisons of companies in the same industry. For example, given the global nature of the automobile industry, a thorough analysis of the industry would include auto companies from many different countries and regions of the world.4.1. Commercial Industry Classification SystemsMajor index providers, including Standard & Poor’s, MSCI Barra, Russell Investments, Dow Jones, and FTSE, classify companies in their equity indices into industry groupings. Most classification schemes used by these index providers contain multiple levels of classification that start at the broadest level with a general sector grouping, then, in several further steps, subdivide or disaggregate the sectors into more “granular” (i.e., more narrowly defined) subindustry groups.4.1.1. Global Industry Classification StandardGICS was jointly developed by Standard & Poor’s and MSCI Barra, two of the largest providers of global equity indices, in 1999. As the name implies, GICS was designed to facilitate global comparisons of industries, and it classifies companies in both developed and developing economies. Each company is assigned to a subindustry according to its principal business activity. Each subindustry belongs to a particular industry; each industry belongs to an industry group; and each group belongs to a sector. In June 2009, the GICS classification structure comprised four levels of detail consisting of 154 subindustries, 68 industries, 24 industry groups, and 10 sectors. The composition of GICS has historically been adjusted over time to reflect changes in the global equity markets.4.1.2. Russell Global Sectors
eBook - ePubAccounting for Construction
Frameworks, Productivity, Cost and Performance
- Rick Best, Jim Meikle, Rick Best, Jim Meikle(Authors)
- 2019(Publication Date)
- Routledge(Publisher)
An Industry Classification system collects companies and other organizations into groups with similar characteristics. The first Standard Industrial Classification of All Economic Activities (SIC) was established in the United States in 1937, with the United Nations International Standard Industrial Classification (ISIC) following in 1948. This had its most recent revision in 2008: This fourth revision of ISIC enhances the relevance of the classification by better reflecting the current structure of the world economy, recognizing new industries that have emerged over the past 20 years and facilitating international comparison through increased comparability with existing regional classifications. (UN Statistical Division 2008: 3) Since 1948 most countries have used the ISIC classification system or have developed national classifications derived from it, and while today there are many national variants on the ISIC format there is also a great deal of commonality. Economic activities are subdivided in a four-level structure. Activities are first divided into ‘sections’, which are alphabetically coded. These sections divide productive activities into broad groupings such as ‘Agriculture, forestry and fishing’ (A), ‘Manufacturing’ (C) and ‘Information and communication’ (J)
eBook - PDFInvestments
Analysis and Management
- Gerald R. Jensen, Charles P. Jones(Authors)
- 2020(Publication Date)
- Wiley(Publisher)
372 Chapter 14 Sector/Industry Analysis What Is an Industry? At first glance, the term industry may seem self-explanatory. At its most basic, an industry consists of a group of companies primarily engaged in producing or han-dling the same products or in rendering the same services. Everyone is familiar with the auto industry, the pharmaceutical industry, and the electric utility industry. But are these classifications as clear-cut as they seem? Apparently not, because while we have had Industry Classification schemes for many years, the classification systems continue to evolve. Furthermore, investment advisory services and popular press sources use different classification systems. Classifying Industries For more than 60 years, the Standard Industrial Classification (SIC) system was used to classify firms into industries. 3 SIC codes brought order to the Industry Classification problem by providing a consistent basis for describing industries and companies in as broad, or as spe-cific, a manner as desired. Nevertheless, the SIC system was criticized for not being able to handle changes in the U.S. economy. This led to the development of the North American Industry Classification System (NAICS) , which replaced SIC codes in 1997. The NAICS Classification System The North American Industry Classification System (NAICS) is a significant change for classifying economic activities. It was developed using a production-oriented conceptual framework; whereby, companies are classified into industries based on the activity in which they are primarily engaged. Basically, companies that do similar things in similar ways are classified together. NAICS uses a six-digit hierarchical coding system to classify all economic activity into 20 sectors, which provides greater flexibility relative to SIC codes. Fifteen of these sectors are devoted to services-producing sectors compared to five sectors that are mainly goods-producing sectors.
eBook - PDFCorporate Finance
Economic Foundations and Financial Modeling
- Michelle R. Clayman, Martin S. Fridson, George H. Troughton, Michelle R. Clayman, Martin S. Fridson, George H. Troughton(Authors)
- 2022(Publication Date)
- Wiley(Publisher)
456 Business Models and Financial Modeling 4. Industry Classification SYSTEMS A well-designed classification system often serves as a useful starting point for industry analysis. It allows analysts to compare industry trends and relative valuations among companies in a group. Classification systems that take a global perspective enable portfolio managers and research analysts to make global comparisons of companies in the same industry. For example, given the global nature of the automobile industry, a thorough analysis of the industry would include auto companies from many different countries and regions of the world. Classification systems are developed and used by both commercial entities and various governmental agencies. Most government and commercial classification systems are reviewed and, if necessary, updated from time to time. Generally, commercial classification systems are adjusted more frequently than government classification systems, which may be updated only every five years or so. We focus on the commercial systems because they are more commonly used in the investment industry. 4.1. Commercial Industry Classification Systems Major index providers, including Standard & Poor’s, MSCI, Russell Investments, Dow Jones, and FTSE Russell, classify companies in their equity indexes into industry groupings. Most classification schemes used by these index providers contain multiple levels of classification that start at the broadest level with a general sector grouping and then, in several further steps, subdivide or disaggregate the sectors into more granular, narrowly defined sub-industry groups. 4.1.1. Global Industry Classification Standard GICS, jointly developed by Standard & Poor’s and MSCI, was designed to facilitate global comparisons of industries. It classifies companies in both developed and developing economies.
eBook - PDFInvestments
Analysis and Management
- (Author)
- 2016(Publication Date)
- Wiley(Publisher)
Nevertheless, the SIC system was criticized for not being able to handle rapid changes in the U.S. economy. This led to the development of the North American Industry Classification System (NAICS) , which replaced SIC codes in 1997. THE NAICS CLASSIFICATION SYSTEM The North American Industry Classification System (NAICS) is a significant change for analyzing economic activities. It was developed using a production‐oriented conceptual framework; there-fore, companies are classified into industries based on the activity in which they are primarily engaged. Basically, companies that do similar things in similar ways are classified together. NAICS uses a six‐digit hierarchical coding system to classify all economic activity into 20 sectors, which provides greater flexibility relative to SIC codes. Fifteen of these sectors are devoted to services‐producing sectors compared to five sectors that are mainly goods‐ producing sectors. NAICS allows for the identification of 1,170 industries. Nine new service sectors and 250 new service industries are recognized. NAICS is now the standard used by federal statistical agencies to classify businesses. Standard Industrial Classification (SIC) System A classification of firms on the basis of what they produce using census data North American Industry Classification System (NAICS) A company classification system that uses a production‐oriented conceptual framework industry, and the electric utility industry. But are these classifications as clear‐cut as they seem? Apparently not, because while we have had Industry Classification schemes for many years, the classification system for industries continues to evolve, as shown below. Furthermore, invest-ment advisory services and popular press sources use different classification systems. Example 14-2 Consider General Electric, a classic industrial company that has been in business for more than 100 years.
eBook - ePub- Hiromi Kubo, Thomas J. Ottaviano(Authors)
- 2016(Publication Date)
- Business Expert Press(Publisher)
Although the SIC has not been updated since 1987, many business-specific databases and tools still use both the SIC and the NAICS. Therefore, understanding the mechanics of the SIC and the NAICS benefits you in performing industry research more effectively. For example, using NAICS code 485320 as a search query in the ABI/INFORM Complete database pulls out reports and articles only about the industry that deals with chauffeured limousine services from various trade magazines, newspapers, and academic journals, excluding entries on other industries such as airport shuttle service (NAICS 485999), limousine rental (NAICS 532111), and limousine manufacturing (NAICS 336211). Some other helpful Industry Classification systems that might come across in your research paths are the United Nation’s International Standard Industrial Classification of All Economic Activities (ISIC), the European Union’s Statistical Classification of Economic Activities in the European Community (NACE), and the United Kingdom Standard Industrial Classification of Economic Activities (UKSIC). Some companies and resources even develop their own Industry Classification system. For example, Bloomberg uses a Bloomberg Industry Classification system (BICS), and McGraw Hill Financial and MSCI have developed and trademarked the Global Industry Classification Standard (GICS). It is important to recognize that, while the NAICS was developed by the U.S. Government, the government typically does not assign a NAICS code to a particular company. This means that individual resources assign a company the NAICS codes that they believe are most appropriate. Most resources list the primary revenue generating business as the primary industry, but in many cases it is difficult (or even impossible) to determine which industry generates the most revenue. Sometimes this results in one database listing very different NAICS codes for a company than another database
eBook - PDFHow to Find Business Information
A Guide for Businesspeople, Investors, and Researchers
- Lucy Heckman(Author)
- 2011(Publication Date)
- Praeger(Publisher)
The North American Industry Classification System The North American Industry Classification System (NAICS), imple- mented in 1997, is, according to the preface of its 2007 edition, “con- structed within a single conceptual framework. Economic units that have similar production processes are classified in the same industry.” It uses a six-digit hierarchical coding system to classify all economic activity into 20 industry sectors with industries in these sectors grouped 10 How to Find Business Information “according to the production criteria.” The NAICS was developed under the auspices of the Office of Management and Budget, officially adopted in 1997, and “developed jointly by the U.S. Economic Classifi- cation Policy Committee (ECPC), Statistics Canada, and Mexico’s Insti- tuto Nacional de Estadistica y Geografia, to allow for a high level of comparability in business statistics among the North American coun- tries” (U.S. Census website, http://www.census.gov/eos/www/naics). The latest edition of the NAICS code is the 2007 edition. The sectors of the NAICS are 11. Agriculture, Forestry, Fishing, and Hunting; 21. Mining, Quarrying, and Oil and Gas Extraction; 22. Util- ities; 23. Construction; 31–33. Manufacturing; 42. Wholesale Trade; 44–45. Retail Trade; 48–49. Transportation and Warehousing; 51. Infor- mation (including publishing, motion pictures, broadcasting, telecom- munications, data processing, online information services); 52. Finance and Insurance; 53. Real Estate and Rental and Leasing; 54. Professional, Scientific and Technical Services; 55. Management of Companies and Enterprises; 56. Administrative and Support and Waste Management and Remediation Services; 61. Educational Services; 62. Health Care and Social Assistance; 71. Arts, Entertain- ment and Recreation; 72. Accommodation and Food Service; 81. Other Services (except Public Administration); and 92.
- (Author)
- 2007(Publication Date)
- The National Academies Press(Publisher)
This delineating concept typically lies between the firm and the establishment levels. Industry—A product grouping that facilitates analysis of the relationship among products—such as those defined by the North American Industry Classification System (NAICS). Primary source: http://www.census.gov/econ/www/index.html For taxation and other government purposes, businesses are defined in legal terms. In this context, the focus is on businesses registered as indepen- dent legal entities—such as a sole proprietorship, general or limited part- nership, or one of several corporate forms (subchapter S, limited liability, etc.)—with the appropriate government agency, usually a state department Understanding Business Dynamics: An Integrated Data System for America's Future Copyright National Academy of Sciences. All rights reserved. WHAT IS A BUSINESS? 31 of commerce, as a specific type of entity. Any action that would be pursued by the courts related to tax payments, enforcing environmental regulations, antitrust legislation, compliance with Equal Employment Opportunity Com- mission guidelines, and the like would require dealing with the legal enti- ties. Hence, development and administration of legal requirements and regulations require a focus on these kinds of definitions; it is not uncom- mon, however, for a single business, coordinating resources and strategy, to create several legal entities to gain tax advantages, compartmentalize risk exposure, or facilitate development of financial support. Alternatively, business entities may be defined in a more purely eco- nomic sense. In this context, any buyer or seller of goods and services (not acting solely as a consumer) conducting activities that influence prices or quantities exchanged in a market would qualify as a meaningful unit of analysis. Such business entities could consist of the full- or part-time effort of a single person or of an organization of thousands acting in concert.
eBook - PDFIndustry Research Using the Economic Census
How to Find It, How to Use It
- Jennifer C. Boettcher, Leonard M. Gaines(Authors)
- 2004(Publication Date)
- Greenwood(Publisher)
The Small Business Administration has revised its regulations to use NAICS industries. As a result, a business that had been classified as small using the SIC industries may no longer qualify for SBA assis- tance or vice versa. On the strategic management side, many businesses compare themselves against industry norms. Often these norms have been developed from official indus- try statistics. These statistics might come from the Census Bureau, the Bureau of Labor Statistics, or the Internal Revenue Service. In any of these cases, the industries are now defined using NAICS. Because the industries businesses use to compare themselves against might have been redefined, the norms they compare themselves to might be based on a different set of businesses. Businesses might start making a dif- ferent set of strategic decisions since the information leading to those decisions has changed. The conversion from the SIC system to NAICS doesn’t just affect official statistics, but many private data vendors are also changing. One group of private data vendors that are being forced to change their prod- ucts because of the industrial classification changes is the consultants involved with economic modeling. These consultants rely heavily on the official statistics produced by the federal government. Thus, they need to rebuild all of their models to reflect the new system. Companies providing information about individual businesses, such as Dun and Bradstreet, aren’t under as much pressure to convert to NAICS as the eco- nomic consultants. However, many of them are chang- ing over to either reporting just the NAICS industry (or industries) for the businesses they describe or re- porting both NAICS and SIC codes. SUMMARY We are living in a changing economic world. In order to describe the current world, the framework used to describe it has changed. The new system, NAICS, is a system based much more on the produc- tion processes businesses use than the old SIC system was.
No longer available |Learn more- (Author)
- 2022(Publication Date)
- United Nations(Publisher)
3.9. The correspondence between the groups of economic activities that are rel- evant for energy statistics and the appropriate ISIC divisions will be discussed in the next sections. This is particularly important for collecting and presenting internation- ally comparable statistics. 3.10. It should be noted that these correspondences can be easily translated into a correspondence with the Statistical Classification of Economic Activities in the Euro- pean Community (NACE), which is the classification in use in the European Statisti- cal System. NACE is derived from ISIC but is more detailed than ISIC. Both have exactly the same items at the highest levels, but NACE is more detailed at lower lev- els. The same is the case for other related classifications, such as the North American Industry Classification System (NAICS) and the Australian and New Zealand Standard Industrial Classification (ANZSIC) and many national classifications used around the world. 1 Box 3.1 shows an example of the use of Industry Classification categories in an energy survey. 3.11. In energy statistics, a distinction, useful for the development of data collection strategies, is made between different groups of statistical units – energy industries, other energy producers and energy consumers. These groups are presented below. 1. Energy industries 3.12. Energy industries are defined as those economic units whose principal activ- ity is primary energy production, energy transformation or energy distribution. The principal activity is determined in accordance with the standard top-down method described in ISIC. 3.13. The activities defining energy industries are very diverse and their detailed technical descriptions are quite complex. However, for the purposes of energy statis- tics, the activities of economic units belonging to energy industries can be conveniently identified by the establishments (plants) in which they occur.
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