Business Tools

Compare Your Performance With These Economic Ratios

Doctor Profit Inc. has found that many of our clients refer to these business tools very often; and we use them in the process of our diagnosis. The use of these ratios will enable you to summarize the economic situation of your enterprise and then to compare your performance against the standards of your industry. Let us know if you need help applying them or if you have questions as to how to go about improving your business with these tools as the guiding metrics.

Ratios

• Liquidity
Current Ratio		Total Current Assets
	Current Ratio = —————————
		Total Current Liabilities

Acid Test		Current Assets/Inventory
	Acid Test = —————————
		Current Liabilities
• Management
Asset Turnover		Sales
	Asset Turnover = —————————
		Total Assets

Inventory Turnover		Cost of Goods Sold
	Inventory Turnover = —————————
		Average Inventory During Period

Collection Period**		Accounts Receivable * 365
	Collection Period = —————————
		Sales
• Tests of Solvency
Capital Structure		Long Term Debt
	Capital Structure = —————————
		Net Worth

Debt to Total Assets		Total Debt
	Debt to Total Assets = —————————
		Total Assets

Times Interest Earned		Earning Before Interest and Tax
	Time Interest Earned = —————————
		Interest Expense

Equity Ratio		Total Owner’s Equity
	Current Ratio = —————————
		Total Equities
• Profitability
Gross Margin		Gross Profit
	Gross Margin = —————————
		Net Sales
	(Gross Profit = Net sales – Cost of Goods Sold)

Pretax Income to Sales		Pretax Income
	Current Ratio = —————————
		Sales

Return on Net Worth		Net Income
	Return on Net Worth = —————————
		Net Worth

Earning per Share		Net Income/Preferred Share
	Earning per Share = —————————
		Number of Common Share Outstanding

Price Earning Ratio		Price per Share
	Price Earning Ratio = —————————
		Earnings per Share
• Personnel Management Ratios
Absenteism Rate		Number of Days in Absenteism
	Absenteism Rate = —————————
		Working Days * Average Number of Employees

Accident Rate		Number of Days in Lost-Time Accident
	Accident Rate = —————————
		Working days * Average Number of Employees

Employee Turnover		Number of Departures
	Employee Turnover = —————————
		Average Number of Employees

Education and Training**		Annual Hours of Training
	Education and Training = —————————
		Working Days * Average Number of Employees
	** Result will be in number of days.
• Sales Management Ratios
Salesmen Productivity		Total Sales
	Salesmen Productivity = —————————
		Number of Salesmen

Salesmen Efficiency		Total Sales
	Salesmen Efficiency = —————————
		Total Projected Sales

Client Dependency		Best Client Purchases
	Client Dependency = —————————
		Total Sales

Client Growth		New Clients
	Client Growth = —————————
		Total Number of Clients

Target Market Penetration		Total Number of Targeted Clients
	Target Market Penetration= —————————
		Size of Target Market

New Product Performance		New Product Sales
	New Product Performance = —————————
		Total Sales

Target Market Identification Tools

Introduction Growth Maturity Saturation Decline

Target Market Innovators Early adopters Early Majority Late Majority Laggards

Sales Low Rapid Growth Leveling off Moderate decline Rapid decline

Profits Loss Highest levels Moderate Low Low or Negative

Marketing Emphasis Build product awareness Create brand preference Create brand loyalty Maintain brand loyalty Stimulate demand or divest

Marketing Expenditures Very Important Important Important Moderate Minimal

Product(s) Unique Competitive products Modifications and re-positioning Emphasis on service Similar products Product simplification

Promotion: Advertising Informative Persuasive Create brand loyalty Differentiation Reminder

Sales Force Convince distributors Expand distribution Maintain .Increase distribution Maintain distribution Drop unprofitable distributors

Place : Distribution Exclusive, Selective Selective, Intensive Intensive Intensive Selective

Price Skimming Regular decrease Rapid decrease Stability Regular increase