Business Ratios and Formulas: A Comprehensive Guide (2002) by Steven M. Bragg

By Steven M. Bragg

An entire appraisal of analytical instruments to be had to managers to evaluate functionality "Steve Bragg has created an invaluable, correct consultant to making use of functionality measurements around the association. His functional motives and examples may still allow managers to use subtle functionality measures in an easy demeanour. This e-book might be a useful gizmo for method development. it may be good bought by means of managers, accountants, and consultants." —Clint Davies, associate (Principal), Berry, Dunn, McNeil & Parker enterprise managers require various analytical instruments to evaluate a bunch of organizational functionality standards-from finance, potency, capability, and industry proportion to asset usage, funds flows, liquidity, and capital constitution. Steven Bragg's company Ratios and formulation represents a complete source of approximately 2 hundred operational standards, permitting managers and auditors to choose and select the instruments they should top examine their organization's functionality. each one cataloged size incorporates a description, an instance, and a few time-tested troubleshooting. company Ratios and formulation proves an authoritative source for managers wishing to entirely examine organizational functionality.

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To avoid this problem, the ratio should be aggregated on a rolling quarterly basis, so that returns will be more likely to be matched against related sales. The formula is: Total sales returns ———————— Gross sales Example: The Matterhorn Pen Company sells the bulk of its pens during the Christ- mas selling season, with a sharp drop in sales immediately thereafter. 5 shows the sales and return figures for the six months nearest the Christmas season. 6 3-Month rolling sales 3-Month rolling returns Returns ratio Oct Nov Dec Jan Feb Mar $81,500 $7,400 8% $208,500 $8,650 4% $835,500 $21,350 3% $810,000 $83,550 10% $678,000 $81,000 12% $51,000 $67,800 133% This table shows that there is a time lag of exactly one month on all sales returns, and that the return rate is always exactly 10% when compared to the gross sales from which the returns originated.

The maximum potential profit figure of $750,050 is derived by subtracting the revised break-even point from the maximum possible sales capacity level of $10,000,000 and then multiplying the result by the gross profit percentage. Cautions: This measurement should be tracked on a trend line, because it usually requires substantial changes by the management team to alter it, which may require a number of reporting periods to accomplish. To calculate it on a spot basis, it is useful to create a multiperiod measurement, so that an average gross margin percentage and operating cost can be used that smooths out expense irregularities over the short term.

8% $20,000,000 –$29,000,000 38 / Business Ratios and Formulas Cautions: This ratio can cause false signals that a company is having problems, if the company’s sales are so seasonal that the ratio reveals a loss during nonseasonal selling periods. It can also be misleading if there are several operating units, because it may show that overall results are acceptable while not revealing that some product lines within the reporting group have less stellar results. This problem can be avoided by calculating the ratio for each individual product line or business unit within a company.

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