Business Tools

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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.




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 = —————————
• 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 = —————————
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