Business Ratios and Formulas: A Comprehensive Guide, 2nd Edition

by Steven M. Bragg

• ISBN13: 9780470055175
• ISBN10: 0470055170
• Edition: 2nd
• Format: Hardcover
• Copyright: 2006-11-01
• Publisher: Wiley

Summary

Required reading for anyone starting, running, or growing a business, Business Ratios and Formulas, Second Edition puts answers at the fingertips of business managers, with nearly 250 operational criteria and clear, easy-to-understand explanations that can be used right away. The Second Edition includes approximately fifty new ratios and formulas, as well as new chapters covering ratios and formulas for e-commerce and human resources.

Author Biography

STEVEN M. BRAGG, CPA, CMA, CIA, CPIM, has been the chief financial officer or controller of four companies, as well as a consulting manager at Ernst & Young and auditor at Deloitte & Touche. He received a master's degree in finance from Bentley College, an MBA from Babson College, and a bachelor's degree in economics from the University of Maine. He has been the two-time president of the Colorado Mountain Club, is an avid alpine skier and mountain biker, and is a certified master diver. Mr. Bragg resides in Centennial, Colorado. He is also the author of Accounting Best Practices and Design and Maintenance of Accounting Manuals (both published by Wiley).

Table of Contents

About the Author	xv
Preface	xvii
Acknowledgments	xix
1 Introduction	1	(4)
2 Asset Utilization Measurements	5	(30)
Sales to Working Capital Ratio	6	(1)
Sales to Fixed Assets Ratio	7	(2)
Sales to Administrative Expenses Ratio	9	(1)
Sales to Equity Ratio	10	(1)
Sales per Person	11	(2)
Sales Backlog Ratio	13	(1)
Sales Returns to Gross Sales Ratio	14	(1)
Repairs and Maintenance Expense to Fixed Assets Ratio	15	(2)
Accumulated Depreciation to Fixed Assets Ratio	17	(1)
Fringe Benefits to Wages and Salaries Expense	18	(1)
Sales Expenses to Sales Ratio	19	(1)
Discretionary Cost Ratio	20	(1)
Interest Expense to Debt Ratio	21	(1)
Foreign Exchange Ratios	22	(2)
Overhead Rate	24	(2)
Goodwill to Assets Ratio	26	(1)
Overhead to Cost of Sales Ratio	27	(2)
Investment Turnover	29	(1)
Break-Even Point	30	(1)
Margin of Safety	31	(1)
Tax Rate Percentage	32	(3)
3 Operating Performance Measurements	35	(18)
Operating Assets Ratio	35	(2)
Sales to Operating Income Ratio	37	(1)
Sales Margin	38	(1)
Gross Profit Percentage	39	(1)
Gross Profit Index	40	(1)
Investment Income Percentage	41	(1)
Operating Profit Percentage	42	(1)
Operating Leverage Ratio	43	(1)
Net Income Percentage	44	(2)
Core Operating Earnings	46	(1)
Profit per Customer Visit	47	(1)
Profit per Person	48	(1)
Core Growth Rate	49	(1)
Quality of Earnings Ratio	50	(3)
4 Cash Flow Measurements	53	(20)
Cash Flow from Operations	53	(2)
Cash Flow Return on Sales	55	(1)
Fixed Charge Coverage	56	(1)
Expense Coverage Days	57	(2)
Cash Flow Coverage Ratio	59	(1)
Cash Receipts to Billed Sales and Progress Payments	60	(1)
Cash to Current Assets Ratio	61	(1)
Cash Flow to Fixed Asset Requirements	62	(1)
Cash Flow Return on Assets	63	(2)
Cash to Working Capital Ratio	65	(1)
Cash Reinvestment Ratio	66	(1)
Cash to Current Liabilities Ratio	67	(1)
Cash Flow to Debt Ratio	68	(2)
Stock Price to Cash Flow Ratio	70	(1)
Dividend Payout Ratio	71	(2)
5 Liquidity Measurements	73	(34)
Accounts Receivable Turnover	73	(2)
Average Receivable Collection Period	75	(1)
Days Delinquent Sales Outstanding	76	(1)
Days Sales in Receivables Index	77	(1)
Accounts Receivable Investment	78	(2)
Ending Receivable Balance	80	(1)
Inventory to Sales Ratio	81	(1)
Inventory Turnover	82	(3)
Inventory to Working Capital Ratio	85	(1)
Liquidity Index	86	(1)
Accounts Payable Days	87	(1)
Accounts Payable Turnover	88	(1)
Current Ratio	89	(1)
Quick Ratio	90	(1)
Cash Ratio	91	(1)
Sales to Current Assets Ratio	92	(1)
Working Capital Productivity	93	(1)
Days of Working Capital	94	(2)
Defensive Interval Ratio	96	(1)
Current Liability Ratio	97	(1)
Required Current Liabilities to Total Current Liabilities Ratio	98	(1)
Working Capital to Debt Ratio	99	(1)
Risky Asset Conversion Ratio	100	(1)
Noncurrent Assets to Noncurrent Liabilities Ratio	101	(2)
Short-term Debt to Long-term Debt Ratio	103	(1)
Altman's Z-Score Bankruptcy Prediction Formula	104	(3)
6 Capital Structure and Solvency Measurements	107	(16)
Times Interest Earned	107	(1)
Debt Coverage Ratio	108	(2)
Asset Quality Index	110	(1)
Accruals to Assets Ratio	111	(2)
Times Preferred Dividend Earned	113	(1)
Debt to Equity Ratio	114	(2)
Funded Capital Ratio	116	(1)
Retained Earnings to Stockholders' Equity	117	(1)
Preferred Stock to Total Stockholders' Equity	118	(1)
Issued Shares to Authorized Shares	119	(4)
7 Return on Investment Measurements	123	(24)
Net Worth	123	(2)
Book Value per Share	125	(1)
Tangible Book Value	126	(1)
Return on Assets Employed	127	(2)
Return on Infrastructure Employed	129	(1)
Return on Operating Assets	130	(1)
Return on Equity Percentage	131	(1)
Return on Common Equity	132	(2)
Financial Leverage Index	134	(1)
Equity Growth Rate	135	(1)
Earnings per Share	136	(1)
Percentage Change in Earnings per Share	137	(1)
Economic Value Added	138	(3)
Relative Value of Growth	141	(1)
Dividend Payout Ratio	142	(2)
Dividend Yield Ratio	144	(3)
8 Market Performance Measurements	147	(14)
Insider Stock Buy-Sell Ratio	147	(2)
Market Value Added	149	(2)
Enterprise Value/Earnings Ratio	151	(1)
Stock Options to Common Shares Ratio	152	(2)
Cost of Capital	154	(2)
Sales to Stock Price Ratio	156	(1)
Price/Earnings Ratio	157	(1)
Capitalization Rate	158	(3)
9 Measurements for the Accounting/Finance Department	161	(30)
Purchase Discounts Taken to Total Discounts	162	(2)
Percentage of Payment Discounts Missed	164	(1)
Transactions Processed per Person	165	(1)
Transaction Error Rate	166	(1)
Average Time to Issue Invoices	167	(2)
Average Employee Expense Report Turnaround Time	169	(1)
Payroll Transaction Fees per Employee	170	(2)
Time to Produce Financial Statements	172	(1)
Percentage of Tax Filing Dates Missed	173	(1)
Proportion of Products Costed Prior to Release	174	(1)
Internal Audit Savings to Cost Percentage	175	(2)
Internal Audit Efficiency	177	(1)
Bad Debt Percentage	178	(1)
Percent of Receivables over XX Days Old	179	(2)
Percentage Collected of Dollar Volume Assigned	181	(1)
Collection Effectiveness Index	182	(1)
Percent of Cash Applied on Day of Receipt	183	(1)
Unmatched Receipts Exposure	184	(1)
Cost of Credit	185	(1)
Earnings Rate on Invested Funds	186	(1)
Brokerage Fee Percentage	187	(1)
Borrowing Base Usage Percentage	188	(3)
10 Measurements for the Engineering Department	191	(18)
Bill of Material Accuracy	191	(2)
Labor Routing Accuracy	193	(1)
Percentage of New Products Introduced	194	(1)
Percentage of Sales from New Products	195	(1)
Percentage of New Parts Used in New Products	196	(2)
Percentage of Existing Parts Reused in New Products	198	(1)
Average Number of Distinct Products per Design Platform	198	(1)
Percentage of Products Reaching Market before Competition	199	(1)
Intangibility Index	200	(1)
Science Linkage Index	201	(1)
Ratio of Actual to Target Cost	202	(2)
Warranty Claims Percentage	204	(1)
Time from Design Inception to Production	205	(1)
Percentage of Floor Space Utilization	206	(3)
11 Measurements for the Human Resources Department	209	(6)
Employee Turnover	209	(1)
Average Time to Hire	210	(1)
Late Personnel Requisitions Ratio	211	(1)
Intern Hiring Percentage	212	(1)
Ratio of Support Staff to Total Staff	213	(2)
12 Measurements for the Logistics Department	215	(34)
Production Schedule Accuracy	216	(1)
Economic Order Quantity	217	(1)
Number of Orders to Place in a Period	218	(1)
Economic Production Run Size	219	(1)
Raw Material Inventory Turns	220	(1)
Raw Material Content	221	(2)
Finished Goods Inventory Turns	223	(1)
Obsolete Inventory Percentage	224	(1)
Percentage of Inventory > XX Days Old	225	(1)
Percentage of Returnable Inventory	226	(1)
Inventory Accuracy	227	(1)
Percentage of Certified Suppliers	228	(1)
Electronic Data Interchange Supplier Percentage	229	(1)
Distribution Turnover	230	(2)
On-Time Parts Delivery Percentage	232	(1)
Purchased Component Defect Rate	233	(1)
Incoming Components Correct Quantity Percentage	234	(2)
Percentage of Actual Payments Varying from Purchase Order Price	236	(1)
Percentage of Purchase Orders Issued below Minimum Dollar Level	237	(1)
Proportion of Corporate Credit Card Usage	238	(1)
Percentage of Receipts Authorized by Purchase Orders	239	(1)
Freight Audit Recovery Ratio	240	(2)
Picking Accuracy for Assembled Products	242	(1)
Order Fill Rate	242	(2)
Average Time to Ship	244	(1)
On-Time Delivery Percentage	245	(1)
Percentage of Products Damaged in Transit	246	(1)
Percentage of Sales through Distributors	247	(2)
13 Measurements for the Production Department	249	(32)
Constraint Productivity	250	(1)
Takt Time	251	(1)
Constraint Rework Percentage	252	(1)
Constraint Schedule Attainment	253	(1)
Constraint Utilization	254	(1)
Degree of Unbalance	255	(1)
Throughput Effectiveness	256	(2)
Manufacturing Critical Path Time	258	(1)
Manufacturing Efficiency	259	(1)
Break-Even Plant Capacity	260	(2)
Manufacturing Effectiveness	262	(1)
Productivity Index	263	(1)
Unit Output per Direct Labor Hour	264	(1)
Average Equipment Setup Time	265	(1)
Unscheduled Machine Downtime Percentage	266	(2)
Mean Time between Failures	268	(1)
Acceptable Product Completion Percentage	269	(2)
Work-in-Process Turnover	271	(1)
Scrap Percentage	272	(2)
Warranty Claims Percentage	274	(1)
Maintenance Expense to Fixed Assets Ratio	275	(1)
Indirect Expense Index	276	(1)
Reorder Point	277	(2)
On-Time Delivery Ratio	279	(2)
14 Measurements for the Sales and Marketing Department	281	(20)
Market Share	281	(1)
Customer Turnover	282	(2)
Net Promoter Score	284	(1)
Browse to Buy Conversion Ratio	285	(1)
Recency	286	(1)
Direct Mail Effectiveness Ratio	287	(2)
Inbound Telemarketing Retention Ratio	289	(1)
Proportion of Completed Sales to Home Page Views	290	(1)
Quote to Close Ratio	291	(1)
Pull-Through Rate	292	(1)
Sales per Salesperson	293	(1)
Sales Productivity	294	(2)
Sales Effectiveness	296	(1)
Sales Trend Percentage by Product Line	297	(1)
Product Demand Elasticity	298	(1)
Days of Backlog	299	(2)
15 Measurement Analysis with an Electronic Spreadsheet	301	(24)
Financial Statement Proportional Analysis	302	(1)
Financial Statement Ratio Analysis	303	(3)
Automated Ratio Result Analysis	306	(1)
Leverage Analysis	307	(2)
Trend Analysis	309	(2)
Forecasting	311	(3)
Cash Flow Analysis	314	(2)
Capital Asset Analysis	316	(2)
Compounding Analysis	318	(2)
Investment Analysis	320	(3)
Risk Analysis	323	(2)
Appendix: Measurement Summary	325	(26)
Glossary	351	(6)
Index	357