Business Analysis Metrics Flashcards
ALL business metrics can be classified into three broad categories:
REVENUE metrics, PROFITABILITY metrics and RISK metrics.
REVENUE metrics relate to (which areas of business)
SALES and MARKETING
PROFITABILITY metrics relate to (which areas of business)
LOGISTICS and OPERATIONS
RISK metrics relate to (which areas of business)
MANAGERS and outside INVESTORS
What is a metric:
A number we can impact when we change our business processes.
What are profitability metrics?
Metrics which relate to the efficiency of the processes by which the company creates and delivers its products and services to customers.
“How much cash is tied up in the form of unsold inventory” is an example of what type of metric?
Profitability metric
“What portion of products off a production line are rejected as defective” is an example of what type of metric?
Profitability metric
What are risk metrics?
Metrics that track and mitigate dangers. For example if a company is spending a large portion of its net cash flow every month on interest on its debts, then even a small drop in revenues caused by an external shock could cause the company to become insolvent and collapse.
What does the NET CASH OUT risk metric refer to?
NET CASH OUT refers to how many months can the company survive at the present burn rate.
CHURN RATE risk metric?
Rate at which new subscribers drop off within a year.
Traditional metrics
Quarterly statements of net cash flow, profits and lossses, and changes to balance sheet items such as shareholder´s equity. (After the fact reporting)
Dynamic Business metrics:
Convey urgency, what changes can we make right now to increase revenue, maximize profitability or reduce risk.
Two attributes make a metric dynamic: significant change over a month or less. Specific actions that will significantly impact the metric in short term.
What are Net D Payment Terms?
net D payment terms tell the buyer that they have D days to make payment from the date the invoice was issued. If you don’t already know, invoice payment terms are the agreed-upon time frames in which buyers are expected to pay an invoice after receiving goods or services. Usually, these terms – also known as trade credit terms – are set before an invoice is delivered.
This impacts the cash flow of companies.
What does the term depreciation refer to?
Depreciation is an accounting practice used to spread the cost of a tangible or physical asset over it useful life. Companies depreciate assets for both tax and accounting purposes.
Examples of Fixed Costs:
Depreciation
Rent, Utilities, Insurance, Licenses, Salaries (General and administrative G&A costs).
What does Negative Float refer to?
The interval from when a customer writes a check until it is added to a company’s checking account.
Contrary to positive float, where you get the money first and deliver a service or good later.
Accounts receivable:
We delivered something, and we have an account receivable until the payment for that amount is done.
Accounts receivable (AR) is the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers. Accounts receivable is listed on the balance sheet as a current asset. Any amount of money owed by customers for purchases made on credit is AR.
Economies of scale
Rising marginal profit on higher sales and production are called Economies at scale.
Economies of scale refer to the cost advantage experienced by a firm when it increases its level of output. The advantage arises due to the inverse relationship between the per-unit fixed cost and the quantity produced. The greater the quantity of output produced, the lower the per-unit fixed cost.
Sales Funnel Metric
- You start with the lead (so you know works at a company that might need your product)
- Qualify a lead: know your client, they plan to buy and have a budget to buy what you are selling.
- Identify the correct decision maker.
- Identify expression of interest from the decision maker.
- Negotiate terms and pricing.
- Done
Main enterprise sales metrics:
New leads
New Qualified Leads: Leading to expression of interest, meeting correct decision maker
Getting to yes
Actual contract binding sales.
