Cross-Sectional Analysis

Perhaps you’ve read about survey results where a “cross section” of people (who were selected based on defined variables) were polled about a particular topic. A cross-sectional analysis is something a portfolio manager might do on a company in order to measure its financial health in relation to other companies in that industry.

An analyst would consider such things as the company’s value, amount of debt, productivity, and future outlook, as compared to other, similar companies. This is all done as a snapshot of a single moment in time, as opposed to a long-term study. The important thing is to choose the appropriate “cross section” of other companies in that industry for comparison purposes. You don’t want to compare Sunoco to Macy’s, for example.