Definition
The Standard Industrial Classification (SIC Code) is a system used for classifying industries by a four-digit code. Established in the United States in the 1930s, it is used by government agencies to classify industry areas. The SIC system is also used by agencies in other countries, including the United Kingdom.
Phonetic
The phonetic pronunciation of “Standard Industrial Classification (SIC Code)” is: Standard: /ˈstændərd/Industrial: /ɪnˈdʌstrɪəl/Classification: /ˌklæsɪfɪˈkeɪʃn/SIC: /sɪk/ Code: /koʊd/
Key Takeaways
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- Standard Industrial Classification (SIC Code) is a system established by the U.S. government for classifying industries by assigning a four-digit code. It is primarily used to categorize and analyze the different types of businesses operating within the economy.
- The SIC Code system is used by governmental and non-governmental agencies to track, analyze and shape economic policies. For instance, it is used to define industry sectors in a consistent manner for the collection, analysis, and publishing of statistical data related to the U.S. business economy.
- Despite its extensive use, the SIC Code system has largely been replaced by the more detailed and expanded North American Industry Classification System (NAICS). However, certain databases and agencies still use SIC Codes due to its historical prevalence and quick referencing.
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Importance
The Standard Industrial Classification (SIC Code) is a significant term in business and finance because it’s a system used for classifying industries by a four-digit code. It was established in the United States in the 1930s to classify businesses for the collection, analysis, and publication of statistical data related to the U.S. economy. This system is important because it allows for the organized categorization and identification of the industry-specific operations of businesses. This in turn aids in comparison studies, helps regulatory authorities manage industry regulations, and lets companies identify their competitors, potential partners, and market conditions easily. Ultimately, the SIC Code system helps streamline economic activities.
Explanation
The Standard Industrial Classification (SIC) Code serves a crucial function in the world of business and finance by providing a system for uniformly classifying industries through a four-digit code. The main purpose of the SIC Code is to support the collection, presentation, and analysis of data, which ultimately enable the comparison of business activity across different statistical agencies, regions, and countries. These codes enable the identification of an industry’s primary line of business, thereby supplying government agencies with a comprehensive picture of the country’s economic activities along with allowing the precise tracking of economic growth and stability.Moreover, SIC Codes are extensively used by private sector firms for various business purposes. For instance, companies often use these codes to identify competitors within their industry, outline potential markets, or ascertain customer demographics. Financial analysts and economists utilize them during studies and reports to deliver a clear, uniform approach to categorizing businesses. Marketing firms leverage SIC Codes to precisely target advertisements and sales efforts toward certain industry sectors. Hence, SIC Codes serve a fundamental role in diverse domains, from economic research to promoting business growth and expansion.
Examples
1. Insurance Industry: The insurance industry primarily falls under the SIC Code 6399 – Insurance Carriers, NEC. An insurance company, like Allstate, uses this particular SIC Code when it operates in various insurance aspects such as accident, sickness, health insurance, etc. This way, the company is classified accurately, and it helps in benchmarking and data comparison across the industry. 2. Retail Industry: Walmart, being a multinational retail corporation that operates a chain of department stores, would fall under the SIC Code 5311 – Department Stores. This specific code categorizes the company enabling clear distinction from other business types and industries. 3. Auto Manufacturing Industry: An auto manufacturing company like Ford Motor Company has an SIC Code of 3711. This is specifically for companies who are in the business of manufacturing motor vehicles and passenger cars. The classification assists in creating clear cut divisions based on the tasks performed by the different types of companies in the market.
Frequently Asked Questions(FAQ)
What is Standard Industrial Classification (SIC Code)?
The Standard Industrial Classification (SIC) is a system for classifying industries by a four-digit code established in the United States in 1937. It is used by government agencies to classify industry areas.
What is the purpose of Standard Industrial Classification (SIC Code)?
The SIC code is used to categorize industries by type of economic activity. These classifications make it easier for analysts and decision-makers to compare and analyze industries and economic activity across various dimensions.
How is the SIC Code structured?
The SIC Code consists of a 4-digit code. The first two digits represent the major industry sector, the third digit identifies the industry group and the fourth digit indicates the specific industry.
Does every business have an SIC Code?
Yes, every business is assigned an SIC code upon registration. This information is publicly available and is used by government bodies for statistical analysis of the economy.
How can I find a company’s SIC Code?
A company’s SIC Code can typically be found in its public filing documents. Additionally, the U.S. Department of Labor maintains a searchable database of SIC Codes on its website.
Are SIC Codes used worldwide?
Originally, SIC Codes were used primarily in the U.S, but now other countries have adopted similar systems. However, some countries like the UK have transitioned to a newer system known as NACE Codes.
Has the SIC system been replaced?
In the U.S, the SIC system has largely been replaced by the six-digit North American Industry Classification System (NAICS) in 1997, but certain government departments and agencies, such as the U.S. Securities and Exchange Commission (SEC), still use the SIC system.
How often are SIC codes updated?
SIC codes were updated periodically by the U.S. government; however, the updates stopped in 1987 with the plan to transition to the NAICS system.
Can a business have more than one SIC Code?
Yes, a business can have more than one SIC Code if it operates in different industries. The first SIC code listed is typically the primary, or main, business activity of the company.
Related Finance Terms
- North American Industry Classification System (NAICS)
- Industry Classification Benchmark (ICB)
- Industry Sector Code
- Business Activity Code
- Economic Classification Policy Committee (ECPC)
Sources for More Information
- U.S. Securities and Exchange Commission
- NAICS Association
- Duke University Libraries
- Occupational Safety and Health Administration (OSHA)
