Professional Services

Back to the Profitability Report

Net Profit Margin Net Pretax Profit ÷ Revenue
The bottom line -- the amount you have left after every other expense is taken out. (Sageworks adjusts the number so any extra funds the owners have taken out have been added back in.)
* Gross Profit Margin Gross Profit ÷ Revenue
Gross profit is your revenue minus what it costs to make your product.
EBITDA Margin EBITDA ÷ Revenue
Many companies use this as a shorthand measure of cash flow. EBITDA is earnings before interest, taxes, depreciation, and amortization.
Return on Equity Net Income ÷ Total Equity
The return your shareholders are getting on their investment.
Return on Assets Net Income ÷ Total Assets
Net income generated for each dollar of assets. It's especially relevant for capital-intensive industries, like manufacturing.
Interest Coverage Ratio EBITDA ÷ Interest Expense
This ratio shows roughly how easily you can repay your debts.
Debt to Equity Ratio Total Liabilities ÷ Total Equity
What you owe compared with what you own.
Sales per Employee $163,798
Profit per Employee $18,590
Payroll as % of Sales 27%
Advertising as % of Sales 1%
** Accounts Payable Days (Accounts Payable ÷ Cost of Goods Sold) x 365
The number of days, on average, you take to pay your bills.
Accounts Receivable Days (Accounts Receivable ÷ Sales) x 365
The number of days, on average, your customers take to pay you.
Current Ratio Total Current Assets÷Total Current Liabilities
The amount of cash (or assets that can be turned into cash) on hand.
Quick Ratio (Cash + Accounts Receivable) รท Total Current Liabilities
Similar to the current ratio, this is a good measure of a company's short-term cash position.
Sample Size 2,076

* Industry Focus: Professional Services
CFOs at professional services firms expect high margins -- at least 67 percent -- because the cost of sales is low; basically, the only thing that goes into the product is labor. "If your gross margins go below 50 percent, think about changing your business model," says Richard Block, a CFO partner with Tatum. Maybe, for example, your employees are collecting paychecks even when they are not working on a project. Instead, Block says, think about classifying them as contractors and paying them only when they work.

** Most companies hold on to their cash as long as they can; if a bill is due in 30 days, that's when they will pay, and not a moment sooner. Some businesses believe that paying early will endear them to their creditors (and professional services firms often have enough cash on hand to do just that). But Terry Eve, a partner with B2BCFO, says companies should always wait as long as possible before sending cash out the door: "At the end of the day, nobody gives you bad marks as long as you pay to terms."

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