monthly management report - maus

Monthly Management Report

Company ABC - Sample Company Analysis of Business Performance

Feb 2018 to May 2018

Financial Ratio Report

Report Background This report was prepared based on the information provided. No audit or investigation has been done into the figures contained within the report. This report is provided for internal use only by the recipient. It may not be given to any other person.

Period: May 2018 Income

Income $498,875 (Last month: $502,475)

Your achievement this month for this KPI is greater than the previous year which was $491,362

There is a negative trend of this KPI of 1 % against the previous month

The year to date of Income is $5,172,247 which is a variance of 104 % against last year

EBIT

EBIT $246,362 (Last month: $256,362)

Your achievement this month for this KPI is less than the previous year which was $270,323

There is a negative trend of this KPI of 4 % against the previous month

The year to date of EBIT is $2,594,357 which is a variance of 98 % against last year

Cash

Cash $35,892 (Last month: $32,895)

Your achievement this month for this KPI is greater than the previous year which was $31,578

There is a positive trend of this KPI of 9 % against the previous month

The year to date of Cash is $402,828 which is a variance of 98 % against last year

Working Capital

Working Capital $0 (Last month: $0)

Your achievement this month for this KPI is same as the previous year which was $0

No different with previous month

The year to date of Working Capital is $0 which is a variance of 100 % against last year

Major successes: In this field users can list their major success's for the current month:- Great sales- Profit margins increase due to securing new distribution channel- New branding almost complete- Won Sydney contract Major Obstacles: In this field users can list their major obstacles for the current month E.g.- Recruitment advertising has not been effective - Lack of team depth to cover night shift...urgently need to address- Unforeseen expenses with machine breakdown


PROFIT PERFORMANCE


CASH PERFORMANCE


Your Break-Even Point Breakeven Revenue

Actual Revenue

Variable Costs

Fixed costs

75,149 498,875 31,722 43,427


HOW HEALTHY IS YOUR BUSINESS


SNAPSHOT OF YOUR RATIO’S


FINANCIAL RESULTS

Financial Summary

Revenue 498,875

EBIT 246,362

Working capital 19%

Owner ROI (EBIT plus ADDBACKS) 246,112

Cash 3.20

Sales by Sales Person 0

Owner’s Equity 130,853

Profit per Employee 0

Revenue per Employee 0

Revenue by Sales Person 0

FINANCIAL RATIOS

Profitability Ratios

Income Growth (%) -1%

Gross Profit Margin (%) 58%

Net Profit Margin (BT) (%) 49.4%

Return on Owners Equity (%) per annum 188.3%

Owner ROI (EBIT plus ADDBACKS) 44%

EBIT Margin (After ADDBACKS) 50%

Efficiency Ratios

Asset Turnover per annum

Debtor Ratio 758.26

Debtors Days 0.5

Stock (Days) 3.1

Payables ratio 1865.57

Payables Days 0.2

Sales per Employee($) per annum NA

Return on Assets Employed (BT) (ROTA) 153%


Return on Capital Employed (ROCE) 164%

Fixed Asset Ratio 50%

Financial Risk Ratios

Current Ratio (x:1) 6.22

Quick Ratio (x:1) 4.35

Ownership Ratio (%) 81%

Interest Cover (times) 0.00

Z-Score (Private manufacturing company) 96.90

Z-Score (Private non-manufacturing company) 132.42

Cash Ratio 3.20

Financial Growth Ratios

Revenue Growth -1%

Profit growth -4%

Sales by Sale Person Growth NA

Working Capital 19%

EBIT Plus ADDBACKS Growth -4%

Maintain Margins & Efficiency

Net Profit Margin Movement -3%

Gross profit margin Movement -3%

Return on capital Movement -9%

Debtors (days) Movement 150%

Inventory (Stock) Days Movement 1108%

Payables (Days) Movement -33%

Return on Capital E(ROCE) Movement -10%


YOUR INPUT DATA

Financial Summary of your P&L

Total Revenue 498,875

Less Cost of Goods 210,586

Gross Margin 58%

Less Expenses

Marketing expense 18,000

Wages 19,452

Associated Wages 1,250

Overhead 2,900

Depreciation 1,825

Total Operating Expenses 43,427

Operating income (EBIT) 244,862

Plus non-operating income 1,500

EBIT (Earnings before interest & taxes) 246,362

Interest expense 1,946

Tax 27,184

Net income (after tax) 217,232


Balance Sheet

CURRENT ASSETS

Cash and cash equivalents 35,892

Debtors 7,895

Inventory 21,000

Other Current assets 5,000

Total Current assets 69,787

NON CURRENT ASSETS

Fixed assets 80,000

Intangible Assets 2,000

Other 9,745

Total Non-Current 91,745

TOTAL ASSETS 161,532

CURRENT LIABILITIES

Creditors 1,489

Provisions 4,500

Accrued Liabilities 2,250

Other Current Liabilities 2,978

Total Current liabilities 11,217

NON CURRENT LIABILITIES

Non-Current Liabilities 19,462

TOTAL LIABILITIES 30,679

Net Assets 130,853

Number of common shares 0

Average number of common shares 0

Average owners' equity 130,853


Retained Earnings 130,853

Number of Employees 0

Number of Sales Employees 0

Total Shareholder loans 0

Value of collateral or property 0

Average total assets 161,532

Average inventory 21,000

Total Supplier Purchases 231,486

Total Revenue bought on credit 498,875


Explanation of the Ratios


Sales

498,875

Gross Profit

Less: 58%

Cost of Sales EBIT

Less: 244,862

210,586

Expenses

43,427

Annualised ROCE

164%

Non – Current Assets

91,745

Total Net Assets

Current Assets Add: 130,853

69,787

Working Capital

Less: 19%

(Closing net Assets)

Current Liabilities

11,217


Liquidity Ratios

Liquidity ratios, such as current and fixed asset ratios, let you know if your business can meet its current financial commitments. The inability of your business to meet the financial demands of creditors is often a sufficient reason for a business to be wound up - irrespective of how profitable it may be.

Therefore, assessing your liquidity is vital to the long term viability of your business. These ratios will help you and your creditors to monitor the liquidity of your business.

The results may require affirmative action – a strategy to improve liquidity. Therefore, the use of ratios should be complemented by cash flow budgeting. This is an important aspect to improving any perceived liquidity deficiencies.


Current Ratio

The current ratio calculates the level of current assets (I.e. cash) available to meet your current liabilities. The formula is:

Current Ratio = Current Assets ÷ Current Liabilities

Or

6.22 = 69,787 ÷ 11,217

In your case current assets are 69,787 and your current liabilities are 11,217, your current ratio is 6.22. This means that your current assets are 6.22 times that of current liabilities. As a rule-of-thumb, the current ratio should be 2.1 or better for a well-established business.

If, however, your business has growing sales and a short operating cycle, a lower current ratio can be acceptable. Your business may not be as 'liquid' initially as it expands. A business with a very long operating cycle may require a current ratio of more than 2.1.

Calculate your current ratio and determine the liquidity of your business. If you believe your liquidity is low, you will need to identify reasons for the low liquidity (E.g. high outstanding debtors, high stock levels, poor sales, long lead times, excessive expenditure). For service/retail companies, not only is stock control an issue, particularly in relation to obsolete stock, but also credit terms and debtors.

Take appropriate action to address your financial position – discuss any concerns you may have with your accountant or bank manager. They may suggest that you generate immediate cash (E.g. offer a special relating to either your services or the products you sell) or reduce operating expenses such as staff levels, rent and other 'fixed' commitments.

Taking affirmative action if you have identified a problem is a key outcome of the benchmarking process. As a retailer and service provider, you have a 'complex' business and the solutions may be many and varied. Consider all options with your accountant.


Fixed Assets Ratio

Fixed and current assets 'compete', if you like, for the limited funds available to your business. Therefore, you need to reach a balance. The best balance between fixed and current assets depends on your type of business.

A restaurant, for instance, requires a substantial investment in fixed assets (E.g. ovens, refrigerators, kitchenware, tables, chairs, tableware, etc.). Its investment in current assets (food) or services (E.g. waiting staff) is usually relatively small and variable. A service provider (E.g. advertising business) may need only a modest investment in fixed assets – its main asset is its people. Every business is different in respect of the investment requirements of assets, and you should calculate your level of investment and make comparisons with the key industry data.

The fixed asset ratio is calculated by comparing the proportion of a business' total assets which are fixed against total assets, as follows:

Fixed Asset Ratio = (Fixed Assets ÷ Total Assets) x 100

50% = (80,000 ÷ 161,532) x 100

In your case your current assets are 69,787 and total non-current assets are 91,745, the total assets are therefore 161,532. Your fixed assets are 80,000. Therefore if you apply the ratio, (80,000 ÷ 161,532) x 100 = 50%. The fixed asset ratio is 50%. Check your benchmarking associated figures to see whether there is a comparison between your fixed asset ratio and your competitors. You can then determine whether you are high, low or average for your industry.

This can, of course, affect your profitability. If your fixed assets are too high, you may have 'over-capitalized' your business (you have too much money tied up in fixed assets, for example, equipment). You may need to 'off-load' some of your excess capital. If your figure is too low, it suggests that you may need to invest some money in your business. Fixed asset holdings generally equate to capacity and by increasing your capacity you may also be able to increase your profitability.

For example, a pizza shop may find that buying an extra oven can improve productivity (output) dramatically. Or, hiring an extra delivery driver can improve your service and ability to deliver. In any event, assess the results, and consider either decreasing or increasing your fixed asset expenditure as a result. You may need to repeat the analysis on a regular basis to ensure you are maintaining your financial performance.


Using Your Profit Margins

Profitability ratios relate your profit level to your sales to show to what extent each dollar of sales generates profit for your business. Moreover, they relate profit to your assets and show how productive your assets are in generating profit. These ratios include the Gross Profit Margin and the Net Profit Margin. The Gross Profit Margin is a valuable economic indicator. It calculates the average profit per dollar of sales before operating expenses. The ratio is defined as:

Gross Profit Margin = Gross Profit ÷ Sales

58% = 288,289 ÷ 498,875

In your case gross profit was 288,289 and total sales were 498,875, the gross profit percentage is 58%

Your business profits are then calculated by subtracting your overhead, wages and other business expenses from your gross profit. If you find that your net profit margin is low, it is likely that revenue is below expectations or your direct costs are too high. For example, if revenue is low, this may be price or volume related. (I.e. you are not charging enough for your products or services or you are not selling enough units). Alternatively, the market may be too "crowded", you may not have the right product mix or you should look at a new marketing angle.

Consider alternatives to boost sales or reduce costs. Also consider asset levels as discussed above. These are the key factors in improving your Gross and Net Profit Margins.

Your Gross Profit Margin can be used to assess how much you can increase your prices without it affecting your profitability. This is an interesting concept for many established businesses, where you no longer need to "discount" in order to obtain market share.

Many business owners worry that increasing their prices will result in a loss of revenue (due to lower sales volumes) but fail to realize that they then need to sell less to achieve the same amount of revenue. For instance, you only need one $100,000 job to have a great month but you will need hundreds of $1000 jobs to get the same return. There is a trade-off between price and volume.


Price Discounting

The main reason companies discount prices is to try and increase their sales volume. But most people don't take into account the profit impact. Sometimes this discounting can become part of your corporate culture. This may not be a good thing!

Your gross margin is 58%. We ran a scenario model for your business to examine whether you are ahead or behind when you cut your prices. If you cut your prices by 10%, you would need to increase sales by 21%.

If you cut your prices by the following amount…

% Discount 5% 10% 15% 20% 30% 45%

You would need to increase your sales by this amount…

Sales Increase 9% 21% 35% 53% 76% 154%

The below table demonstrates our workings based on a scenario where a customer

places an order for 20,000

apply a discount

of 5% apply a discount



of 20% apply a discount of

25% apply a discount

of 35%

Sale Value 19,000 18,000 17,000 16,000 15,000 13,000

Cost of Sales 8,442 8,442 8,442 8,442 8,442 8,442

Gross Profit 10,558 9,558 8,558 7,558 6,558 4,558

Margin 1 1 1 0 0 0

Therefore you would need to achieve the following sales level to maintain your original margin of

$11557.5645201704

Revenue 20,800 21,767 22,960 24,468 26,437 32,967

Cogs 9,242 10,209 11,402 12,911 14,880 21,409

Gross Profit 11,558 11,558 11,558 11,558 11,558 11,558


Price Increase

Higher prices usually equate to less volume, but not necessarily less profitability. The aim is to improve your Gross Profit Margin, and the higher your Gross Profit Margin, the better off you are. If your present margin is 40% and you increase your prices by 10%, you can have a 20% decline in revenue and still achieve the same gross profit. Now that your business is established, you should consider various price/volume scenarios to better utilize your business capacity.

This is particularly true for retail/service type businesses, as they have many variables (I.e. price, service) that can be varied and impact sales (hopefully in a positive manner). The added benefit of increasing your prices is that it may reduce the number of "time wasting" customers. These customers often cost you more than they are worth and take up valuable time and resources. With the "time wasters" gone, you can concentrate on your "A-grade" customers, who will likely not be put off by the price increase.

Pricing is always a key issue, especially for retailers, where price comparison is often done by the customer. To give you an idea of how much you can increase your prices before your gross profit is reduced, we have included a table to help you work out your optimum percentage increase.

If your Gross Profit Margin is:-

20% 25% 30% 35% 40% 45% 50%

Increase your price by:

Your revenue could decline by the amount shown below before your gross profit is reduced

2% 9% 7% 6% 5% 5% 4% 4%

4% 17% 14% 12% 10% 9% 8% 7%

6% 23% 19% 17% 15% 13% 12% 11%

8% 29% 24% 21% 19% 17% 15% 15%

10% 33% 29% 25% 22% 20% 18% 17%

12% 38% 32% 29% 26% 23% 21% 19%

14% 41% 36% 32% 29% 26% 24% 22%

16% 44% 39% 35% 31% 29% 26% 24%

18% 47% 42% 38% 34% 31% 29% 26%


20% 50% 44% 40% 36% 33% 31% 29%

25% 56% 50% 45% 42% 38% 36% 33%

30% 60% 55% 50% 46% 43% 40% 38%

Using the table above will assist you in your price calculation and choosing the right level to increase your profitability. Remember, selling something "cheap" is not always the best profit tactic. Consumers are willing to pay for quality goods and/or services, so a higher price can sometimes attach a higher value to what you are trying to sell.

Consider carefully the price: volume trade-off using the table above. Test your thoughts in the market and adjust your prices accordingly. Ultimately the "market" will determine the value of your product and service and the price.


Return on Assets

This is another ratio used to assess the performance of your business assets. The return you receive on your business assets is due to the effects of your business decisions and this may be measured by two interdependent factors - Net Profit Margin and Asset Turnover.

Net Profit is calculated by:

Gross Profit - Total Overheads ÷ Total Income x 100

288,289 - 43,427 ÷ 498,875 x 100

It is advisable to calculate both of these figures as a higher Net Profit will normally reflect a more efficient or profitable operation. A higher Asset Turnover indicates you are earning more revenue from each dollar of assets. This will then put your Return on Assets figure in better context.

Return on Assets will give you an indication of how well your business is performing for the amount of money you have invested.

Return On Assets = EBIT / Total Assets

153% = 246,362 ÷ 161,532

In your case your net profit is 246,362 and total assets are 161,532, the return on assets is 153%. You should calculate and compare your return on assets against the Key Performance Indicator figures for your industry. You should also benchmark your results against the likely return from 'passive' investments (property, shares, bank deposits). Given the risks of running a business, your return on assets should exceed any return on 'passive' investments. If it does not, you may be better off putting your money elsewhere!

The return on assets ratio can be enhanced by improving your business' performance. How you do this is better determined by the other performance measures (E.g. Gross Profit Margin). Return on assets is useful from a sense of allowing you to gauge what sort of investment return you are getting as a result of all your hard work. A figure in excess of 10% would be considered good.

The Net Profit Margin measures the efficiency with which you are using your assets to generate sales. If your business has a high proportion of fixed assets to total assets, you will usually find it difficult to maintain a stable rate of asset turnover in the face of fluctuating sales. You will need to pay special attention to your Net Profit Margin.

Both the Net Profit Margin and the Asset Turnover are important, but it is their combined effect on the return on assets that matters most to a business.

If you are operating a business with a high net profit margin, you can afford to have a lower rate of asset turnover because you are achieving a good return on assets. The high profit margin provides a 'buffer' for the lower sales volume. Your business is also less sensitive to variations in the net profit margin because it is turning its assets over less frequently. These facts should mean you have a secure business – the 'changes' you need to make may be minimal, however, consider the following.

For example, an established business can increase the net profit margin in one or more of the following ways:

Increase your prices (but consider the volume impact)

Decrease the cost of your inventory by more efficient purchasing (consider a 'just-in-time' inventory system, settlement or volume discounts, rebates)


Decrease operating expenses through leaner operations (avoid unnecessary expenditure on entertainment, marketing, overheads).

Alternatively, you can try and improve your return on assets by increasing the asset turnover in the following ways:

Reduce current assets (E.g. reduce stock levels)

Reduce fixed assets (are your building and equipment needs the same as previously? If not, consider reducing excess asset requirements).

Choose the strategies which will produce more effective results for you, given your particular set of circumstances. For retailers, this is typically stock or excess floor space. And in terms of your service delivery, if you have under-utilized staff, they may need to be retrenched and contract/casual staff used. Sometimes these can be tough decisions, but it could also be a question of survival for your business.


Ownership Ratio

An important but often difficult question in financial management is "what is the right level of debt for a business?" The acceptable level of debt varies between different types of businesses but the following indicator should be useful. As your business grows and becomes more stable, your capacity to borrow will increase. However, it is important that you find the right level of debt and the right use of borrowed funds.

Debt finance provides the financial resources that enable a business to grow and hopefully improve its profitability. However, too much debt can expose the business to the risk of financial loss. Therefore, you must get the 'right' level of debt. How is this measured? The proportion of debt to equity is referred to as the financial structure.

One way of looking at the financial structure is to focus on the proportion of the total business assets represented by the owner's equity in the business. This is calculated as follows:

Ownership Ratio = (Owner's Equity ÷ Total Assets) x 100

81% = (130,853 ÷ 161,532 ) x 100

Where

Owner’s Equity = (Assets – Liability + Owners Loans)

130,853 = 161,532 - 11,217 + 0

To understand this ratio, if the percentage is greater than 50%, then you clearly own more of the business than the creditors. The ideal ownership ratio is a compromise between the costs and benefits associated with borrowing.

If the borrowing cost is less than the return on assets (calculated previously), then borrowing is usually a good financing decision. You are using someone else's money effectively to generate a greater level of profit. However, remember that your return on assets is not certain to remain stable forever.

So, borrowing does have an element of risk. The longer you are in business, the risk factor should diminish. At the end of the day, the margin between what you pay for finance, and what you expect the borrowed funds to return, must be enough to cover your risk.

Additional debt finance will decrease your ownership ratio, increase financial leverage, and potentially improve the return on your equity. However, too much debt will make your business more vulnerable to failure if sales or income fall unexpectedly. You need to assess very carefully your return on assets and whether additional borrowing can sustain the current levels of return.

Consider carefully how you will utilize borrowed funds and how this may improve 'the bottom line'. You should develop a business plan if the borrowed funds represent an expansion phase of your business. Whether new or old, a business should always have a well constructed plan/strategy for the future. This is especially the case where additional borrowing is undertaken for a specific purpose.

For most businesses, borrowing to establish the business and purchase stock is common. Therefore, you need to make sure you do have the ability to pay. Assess all relevant financial ratios (including stock turnover) as this will give you the best indication of your likely financial performance.


Efficiency Ratios

If your assets are being used to their maximum efficiency, then you would expect that the return on your assets should also be at a maximum.

One way of assessing this is to measure their frequency of turnover, such as asset turnover. This is particularly important for businesses selling products. You need to know how quickly your stock sells. You do not want slow moving stock on your shelves.

Basically, by analysing your stock turnover you are calculating how hard and how quickly your asset investments are working for you. We can measure this performance using the following ratios and then look for any improvement.

Asset Turnover This will give you an indication of how well you are moving your assets. Obviously the higher the turnover, the better utilization of your assets. The ratio may vary between types of industries (E.g. a supermarket compared with a luxury car dealership), and can be calculated as follows:

Asset Turnover = Revenue ÷ Total Assets

Asset Turnover = 498,875 ÷ 161,532 = 3.09

In your case, your revenue is 498,875 and total assets are 161,532, the asset turnover is therefore 3.09 times. Calculate your own asset turnover and compare this with the KPI figures or your benchmarking associates. If your turnover is low compared to the industry average, it means your stock is not moving fast enough. This may be related to price, marketing, location of premises, quality of product, what's fashionable – whatever you think makes your product not as popular as your competitors.

You could rectify such problems by having a sale, a marketing campaign, 'touting' for business or by increasing your exposure. Look at what makes your competitors successful and consider your options. Maybe develop a similar strategy and see your ideas through to completion.


Average Collection Period (Debtor Days)

This ratio calculates how quickly you collect your trade debtors. That is, how long it takes for you to collect your money from credit sales. This is useful for businesses whose customers may be on 14 or 30 day credit terms.

The average collection period is used to compare the average age of trade debtors (I.e. how long have they been outstanding) from one point in time to another. It is a useful indicator of how good your clients are at paying their bills. It's an 'overall' picture, so it does not tell us anything about individual accounts. To analyse individual accounts it is necessary to age them separately. Most accounting software products are able to perform this function.

Average Collection Period = (Trade Debtors ÷ Total Credit Sales) x Days in the period

Where days in the period would be 365 for a year or 30 approximately for a month. In your case, the number of debtor days or average collection period is calculated to be 0.5 days.

This is based on the following calculation:

(7,895 ÷ 498,875) x period days Days = 0.5 days

NB assume that your total credit sales = total revenue

Trade Debtors = 7,895 Total Credit Sales = 498,875 Formula = (7,895 ÷ 498,875) x period days = 0.5 days

Calculate and analyse your business' performance. Industry averages are difficult to ascertain, but you may be able to gauge this from general discussions with your competitors. The best measure is to compare your own performance. Anything less than 60 days may be considered satisfactory.

If the average collection period is growing in terms of the number of days, it is a definite signal that your investment in trade debtors is becoming greater relative to your sales. You will need to take action to collect your debtors quicker.

If your average collection period is growing, then you are carrying too many slow payers or you could be holding some bad debts which should be written off. Whichever is the case, the situation needs to be addressed. You should call in the debt collectors or issue reminders to slow bill payers. By not paying your invoice on time, your customers are using your funds to run their business. That's why they are 'good' customers!

If the average collection period is much shorter than the industry average, then you might consider extending more credit in an effort to stimulate greater sales. Some customers rely on credit, so a 'tight' credit policy can sometimes hurt sales. However, it is obviously far better to have a short collection period.


Z-Score – Bankruptcy Predictor. How solvent is your business?

The Z-Score was first published by Edward I. Altman (Leonard N. Stern School of Business at New York University) in 1968. Dr Altman researched companies that had gone bankrupt and then tried to develop a formula that would predict if a company was likely to become insolvent. The resultant formula uses a combination of a number of ratios, then weights and combines them into one score. This has been widely used by professional analysts and has proven to be an excellent indicator. Note that this should be used as an indicator that further analysis should be done on a company rather than a definite predictor that there is a problem. For instance companies that have written off assets would appear to have a low score on this scale but be fundamentally sound. There are two types of Z Scores depending on whether the business is a manufacturing type or non-manufacturing type. The reason being that different types of businesses have different asset turnover rates.

Your Score Excellent 132.42

monthly management report - maus

Documents