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Financial Measurement
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Rules of Thumb
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1.
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RETURN ON TOTAL ASSETS (ROA)
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Pre-tax Profit
Total Assets
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21%
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2.
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RETURN ON INVESTMENT (ROI)
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Pre-tax Profit
Net Worth (beginning)
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32%
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3.
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WORKING CAPITAL (CURRENT) RATIO
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Current Assets
Current Liabilities
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2/1
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4.
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TOTAL LIABILITIES/NET WORTH RATIO
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Total Liabilities
Net Worth
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1.2
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5.
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TOTAL DEBT/NET WORTH (EQUITY) RATIO
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Total Debt (long and short term)
Stockholder's Equity
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66%
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6.
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ASSET TURNOVER
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Net Sales
Total Assets
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3.00-3.25
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7.
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INVENTORY TURNOVER
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Cost of Goods Sold
Average Inventory
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7-12
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8.
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PROFITABILITY INDICATOR
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Inventory Turns X Gross Margin %
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1.5 - 2.5
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9.
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ACCOUNTS RECEIVABLE COLLECTION DAYS
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45 or less
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10.
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ACCOUNTS RECEIVABLE LOSS
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A/R Write-Offs
Charge Sales
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.5% of sales
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11.
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SHRINKAGE
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.5% of Sales
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12.
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PAYROLL/TOTAL EXPENSE
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Total Payroll
Total Expenses
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50%
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13.
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TTL. PERSONNEL RELATED EXP./TTL. EXP.
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Payroll, Med., Comp., Payroll Taxes
Total Expenses
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60%
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14.
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GROSS PROFIT PER EMPLOYEE
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Gross Profit
Total Full Time Equivalent Employees
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$72,000 (Optimal)
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(15 companies we surveyed in 1996 achieved over $100,000 GP/Employee)
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15.
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SALARIES/GROSS PROFIT
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Personnel Related Expenses
Gross Profit
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35%-40% (Optimal)
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KEY SALES RATIOS
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16.
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GROSS PROFIT %
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20 - 24%
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17.
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TOTAL EXPENSES %
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13 - 17%
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18.
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OPERATING PROFIT %
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5 - 8%
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19.
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OUTSIDE SALES EXPENSE %
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3% of Sales or 13% of GP (This is a ceiling, not an average).
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