Understand Industry Classification Codes

Industry classification codes are a hierarchical, numerical system used to classify businesses by industry to collect, compare, and analyze statistical information about those businesses. Government agencies, trade associations, and companies use these codes to provide data compatibility. Some ways that industry classification codes can be helpful to you include:

• Identifying competitors in an industry
• Locating key industry ratios to compare to a company's ratios
• Finding a list of companies within an industry
• Finding articles and reports about an industry

There are two primary industry classification code systems:

NAICS is the newer classification system of the two and was developed jointly by the U.S., Canada, and Mexico to provide compatibility in statistics about business activity across North America. It has largely replaced SIC.

Let's break down a NAICS code.

311824 Dry Pasta, Dough, and Flour Mixes Manufacturing from Purchased Flour

• 31 - This number represents the general categories of economic activity or sectors (manufacturing).
• 311 - Adding the third digit designates the subsector (food manufacturing).
• 3118 - Adding the fourth digit represents the industry group (bakeries and tortilla manufacturing).
• 31182 - Adding the fifth digit represents the NAICS industry (cookie, cracker, and pasta manufacturing).
• 311824 - Adding the sixth digit gives us the national industry code (dry pasta, dough, and flour mixes manufacturing from purchased flour).

Though NAICS has mostly replaced SIC, some government agencies, notably the U.S. Securities and Exchange Commission (SEC), still use SIC, so it can be helpful to understand this system.

Let's break down a SIC code.

2032 Canned Specialties

• 20 - This number represents the major group of the industry (food and kindred products).
• 203 - Adding the third digit designates the industry group (canned, frozen, and preserved fruits, vegetables, and food specialties).
• 2032 - Adding the fourth digit gives us the industry code (canned specialties).

• Primary versus secondary codes. Big companies can often be involved with more than one industry. When this occurs, a company is usually assigned a primary NAICS or SIC code to represent its main industry or business. The other industries will be their secondary codes. When identifying competitors of diversified companies, select competitors doing business in the specific market segment pertinent to your research (i.e., use the NAICS code applicable to the line of business you are researching).
• Keywords are not aligning. Sometimes, your industry keyword may not correspond with the NAICS description. For example, a keyword search for "airlines" will not find the code for companies like Southwest and Delta. If you don't see an appropriate code, find a company report for a significant company in the industry using Mergent Online and note its primary classification code (NAICS lists passenger airlines under 481111 Scheduled Passenger Air Transportation).
• Industry descriptions. The classification systems provide valuable descriptions of industries and sub-industries as well as inspiration for search terms. Scroll through the hierarchy of descriptions for alternative words to describe your industry.

Having trouble finding information on your industry or company? Ask Us! Our librarians are here to help you overcome roadblocks in your research, answer questions you may have, or give you tips on how to navigate any of our resources better.