Ratio Analysis
Too many managers look at the raw dollar
numbers and miss important trends that can
highlight growing problems in their operations.
We advise our clients that ratio analysis
can identify trends before they have a chance
to grow into major problems. Once you identify
a problem you can investigate the cause and
implement corrective actions.
Income Ratios
| |
Qtr1 |
Qtr2 |
Qtr3 |
Qtr4 |
| Sales |
1.1M |
1.0M |
1.05M |
1.2M |
| Cost of Sales % |
45% |
44% |
48% |
50% |
| Gross Profit % |
55% |
56% |
52% |
50% |
| Net Profit % |
12% |
13% |
9% |
8% |
| Administrative Exp % |
12% |
13% |
14% |
15% |
The problem in the above example is that
your gross margin is decreasing. You must
investigate to find out why and take corrective
actions. Is it caused by the pricing of your
titles, excessive production costs, or increasing
royalty expenses?
Management must also investigate why administrative
expenses are steadily increasing as a percentage
of sales.
Balance Sheet Ratios
| |
Qtr1 |
Qtr2 |
Qtr3 |
Qtr4 |
| Days of Inventory |
160 |
180 |
200 |
350 |
| Days of Sales Outstanding |
90 |
89 |
88 |
80 |
| Accounts Payable |
100 |
130 |
150 |
200 |
| Current Ratio |
1.6 |
1.5 |
1.2 |
1.1 |
Activity Statistics
| |
Qtr1 |
Qtr2 |
Qtr3 |
Qtr4 |
| New Customers |
2400 |
2500 |
3000 |
2000 |
| New Titles |
5 |
4 |
0 |
10 |
| Sales per Employee |
200K |
190K |
170K |
200K |
A key statistic that we like to use is new
customer per quarter. Ideally you want to
see marketing acquiring a targeted number
of new customers per quarter.
|
