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Definition
| Indicator of profitability that tells you how much you make on each dollar of sales before expenses. The difference between production costs(excluding overhead, payroll, and taxes) and sales revenue. Not a true indicator of whether your business is making a profit. Who: Execs and Managers Calc:(Revenue-COGS)/Revenue |
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Definition
| Determines how effective the business is at generating profit on each dollar of revenue brought in. A measure of profitability, this KPI is useful for making long and short term financial decisions. Who: Exec and Managers Calc: Net Income/Sales |
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Term
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Definition
| Provides and assessment of the org's ability to pay all debts over a given period. Measures current assets, such as unpaid invoices and current liab, to help understand the solvency of the business. 1 or more is preferable but depends on the length of the operating cycle and industry specific. Who: Execs, banks, lenders Calc: Current assets/Current Liabilities |
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Term
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Definition
| Similar to current ratio but more conservative assessment of finances since it does not include inventory among current assets. Logical since it may not be possible to move inventory quickly enough to bolster short-term financial assets. Value greater than 1 is preferable. Who: Execs, Banks, Lenders Calc:(Current Assets-Inventory)/Current Liabilities |
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Definition
| Shows the ability to generate sales and move aging inventory. High turnover is desirable but shouldn't come at the expense of slashing prices or disrupting normal operations. Who: Managers, Execs Calc: (Total Sales-Cost of Sales)/(Inventory remaining at end of year)= Inventory turnover per year ALSO COGS/Average inventory OR Sales/Inventory |
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Definition
| Measures profitability by examining the ability to generate profit for each unit of shareholder equity. A high ROE indicates the company is able to generate growth from existing investments. Low ROE will erode faith in the org's ability to return on shareholder's investments. Who: Execs, Managers Calc: Net income after taxes/Average Shareholder Equity |
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Term
| Accounts Payable Turnover |
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Definition
| Measures the rate at which the company pays off its suppliers and other expenses. The ratio is important for knowing the amount of cash the business spends on suppliers during any given period. It shows how many times over the course of the year the business is able to pay off its accounts payable. Used in conjunction with Current Ratio or Quick Ratio, this financial metric shows the ability to meet future obligations Who: Execs, Managers Calc: Total Supplied Purchases/Average accounts payable |
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Term
| Accounts Receivable Turnover |
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Definition
| Measures the rate at which outstanding accounts are collected. The problem in maintaining a large bill for a customer is that you may actually be extending them a loan without making any interest on the loan. Essential for understanding business cash flow. Who: Execs, Managers Calc: Net Credit Sales/Average Account Receivable |
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Definition
| Measures how the business is funding its growth. High D2E is indicative of accumulating debt to fuel growth. This may be a good thing as outside debt can increase the ability to generate profit and extend the reach further than the equity can afford. Reaching too far can backfire and leave the company bankrupt and investors with nothing to show for the original investment. Who: Execs, Managers, Bank, Lenders Calc: Total Liabilities/Shareholders Equity |
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Term
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Definition
| Measures the org's financial health and ability to meet any short-term obligations. The metric will be used when considering other financial ratios such as accounts receivable, inventory turnover, and accounts payable. Calc: Current Asstes-Current Liabilities |
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