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Report name: Sample Forecast

Performance Business Ratios

Profitability, returns on investment and efficiency, especially concerning management of key current assets are defined by performance ratios.

forecast for year beginning the 1st.May 2017May 2018May 2019
 Key Profitability Ratios
 Gross Profit Margin42.4%42.4%42.4%
 Net Pre Tax Profit Margin6.1%5.9%11.2%
 Taxed Profit (Net Income) Margin5.3%4.8%9.1%
  

Profit margins as a percentage return on sales. You may notice that the percentage gross profit margin can differ from the one you entered on the form. This will happen if you have also selected a percentage of sales in respect of charges you levy for delivering orders to clients. That increases  the value of gross profit as well as of sales, increasing the gross profit margin.

 Key Performance (Activity) Ratios
 Operating Profit Margin6.5%6.3%11.4%
  

i.e. PBIT (profit before interest and tax); also EBDIT (or EBIT - earnings before deduction of interest and taxation) over sales. Exceptional items such as profits from the sale of fixed assets are also excluded. An important ratio; it measures the strength of the core business.

 Stock / Inventory Ratio10.678.1
  

Also the stock or inventory turn or cycle, this ratio returns stock / inventory turnover. It calculates the average monthly value for stock and divides this into the cost of goods sold. The relevance of this inventory / stock ratio depends on industry norms. For example a business selling fast moving consumer goods will have a much higher inventory ratio than  another which is capital intensive. The higher the stock / inventory ratio, the better the prospects for positive cash flow.

 Payment Days - Suppliers19.719.719.7
  

Also known as creditor days these are the average number of days taken to pay suppliers (trade payables ÷ purchases x 365) following the end of the transaction month.  Payment days are reduced if a proportion of purchases are made by prepaid L/C (letter of credit).

 Cash Collection Days18.318.321.8
  

Average number of days taken to collect cash: i.e. (all accounts receivable ÷ (all sales incl VAT; net of bad debts) x 365) Accounts receivable includes cash due from charge card providers. A very important ratio - The less time taken on average to collect cash, the greater the chances of positive cash flow.

 Return on Assets (ROA)29.4%25.5%35.2%
  

Taxed profits over total assets; both fixed and current. Return on assets is the most important measure of performance for the management of the business. It shows how efficiently the business is turning cash and credit from all sources into profits. While ROA varies considerably for different industries its trend is important. If return on assets is consistently rising year on year, commercial credit and external finance will be a lot easier to come by as opportunities arise.

 Return on Equity (ROE)76.4%43.2%52.5%
  

Return on equity ratio, also known as RONW, i.e. return on net worth, this equals net profit over equity; i.e. capital + retained taxed profits. ROE represents the percentage net profit retuen for investors in the business.

  

Return on equity ratio is sometimes referred to as return on investment. Strictly speaking this is an error. Return on investment ratio usually refers to the market value or sales proceeds of an investment less the orginal cost of the investment divided by that cost. For example if an investment in shares has been made at a cost of £ 10,000 for which the market is now prepared to pay £12,000 the ROI will be 20%.

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