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BOOKKEEPING

The Metrics

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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


Inventory Days

(Inventory ÷ Cost of Goods Sold) x 365

The amount of time it takes to convert inventory into sales


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) ÷ Total Current Liabilities

Similar to the current ratio, this is a good measure of a company's short-term cash position.




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