Financial Ratios

Key financial ratios can be split into several sections including profitability, liquidity, leverage (borrowing) and asset turnover among others.

We have included below a short list of the key financial ratios ALL businesses should use as a minimum on a regular basis to help you better understand your business.

Profitability Ratios                                                                            
Gross Profit % = (Sales - COGS)/ Sales
(make sure GST has been removed from both)
Net Profit % = Net Profit / Total Sales
(make sure no GST is included in any figures)
(Earnings Before Interest and Tax) = Net Profit After Tax + Tax + Interest
= EBIT - Depreciation - Abnormal Items
Return On Assets = Net Profit After Tax/Total Assets
Return On Equity = Net Profit After Tax/Shareholders Funds

Liquidity Ratios                                                                                    

Working Capital $ = Current Assets - Current Liabilities
Current (Working Capital) Ratio = Current Assets/Current Liabilities
Quick Ratio = (Current Assets - Inventory)/Current Liabilities
Cash Ratio = (Cash + Marketable Securities)/Current Liabilities

Leverage (Borrowing) Ratios                                                    
Debt Ratio = Total Debt/Total Assets
Debt To Equity Ratio = Total Debt/Total Shareholders Funds
Interest Cover = EBIT/Interest & Funding Cost

Asset Turnover/Return Ratios                                           
Average Collection Period = Accounts Receivable/(Annual Credit Sales/365)
Accounts Receivable Turnover = Annual Credit Sales/Accounts Receivable
Days Stock = Average Inventory/(Annual Cost of Sales/365)
Inventory Turnover = Cost Of Goods Sold/Average Inventory
Total Asset Turnover = Annual Sales/Total Assets

Operating Ratios
The operating ratios that are applicable to your business may not be the same ratios that are applicable to another business - the key operating ratios are specific to each individual business and industry.

We have included just some of the key operating ratios here that are applicable to every business.

Sales Creation Ratios
Number Of Customers
Number of Sales
Quotes issues (if applicable)
Quotes followed up (if applicable)
Marketing Spend Per Sales $

Staff Productivity
Sales per salesperson/sales manager
Gross Profit $ per salesperson/sales manager
Unit sales per salesperson/sales manager
Average Sales Value

Financial Indicators
Days To Break Even
Cash At Bank
Cash flow
Debtors $
Debtors $ Out of Terms
Financial and Operating Ratios
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It's Not Counting The Numbers That Counts It's What They Mean
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