Financial Analysis Methods & Various Business Metrics

Question 1

Profitability Ratio

Answer 1

analyze a business’ ability to generate earnings in comparison to expense costs

Question 2

Liquidity Ratio

Answer 2

measure the business’ available cash or ability to pay off short-term debts

Question 3

Operational Efficiency/Employee Productivity Ratio

Answer 3

measure efficiency of employees and business resources to generate a profit

Question 4

Leverage/Capital Structure Ratio

Answer 4

assess how the business uses debt to finance operations

Question 5

Marketing & Sales Metric: # of customers/orders

Answer 5

usually used to identify problems with current marketing and sales strategies; if the # is really low compared to a previous period or compared to competitors, then there may be an issue with strategy

Question 6

Marketing & Sales Metric: avg amount received per order

Answer 6

usually used to determine effectiveness of marketing and sales strategies from current customer base; helps decide if focus should be on expanding customer base or on encourage current customers to buy more through sales, discounts, etc

Question 7

Marketing & Sales Metric: gross profit margin

Answer 7

usually used to determine whether a particular marketing or sales strategy currently in effect is profitable

Question 8

Operations & Business Development Metric: # of activities

Answer 8

count of how many tasks the organization is trying to do at one time; usually used to determine whether company is taking on larger workload than what it can normally handle

Question 9

Operations & Business Development Metric: innovation rate

Answer 9

gross revenue from new ideas/products/services divided by total gross revenue; useful for developing strategic plan; if the innovation rate is equal or higher than competitors, current strategy is appropriate so focus should be on designing products that fit this strategy; if rate is a lot lower than competitors, new strategy should be implemented with products different from the current ones; this measures how profitable each group of new innovations has been for the firm, it’s NOT measuring how innovative company is

Question 10

Operations & Business Development Metric: opportunity success rate

Answer 10

of opportunities taken advantage of divided by total # of opportunities available

Question 11

Information Technology Metrics: # of online orders

Answer 11

useful for developing a strategic plan because it measures effectiveness of website

Question 12

Information Technology Metrics: availability of information resources

Answer 12

% of time the company’s tech resources (servers, websites, email, etc) are accessible at the time they’re needed; essential factor of any strategic plan because tech is only useful if it works

Question 13

Information Technology Metrics: # of view per page/per listing

Answer 13

measures effectiveness of website and ads

Question 14

General Business & Economic Environment Metrics: current # of competitors

Answer 14

how much competition is present in a particular market now

Question 15

General Business & Economic Environment Metrics: avg # of new competitors

Answer 15

average # of businesses entering the same market during a year; measures how the current competition will change in the future

Question 16

General Business & Economic Environment Metrics: current market share

Answer 16

% of local or overall market the business controls or the % of market with which organization does business; measures success and growth in a particular market and compares it to competitors; if it’s low or starting to decline, that indicates current marketing strategies need to be reviewed

Question 17

General Business & Economic Environment Metrics: avg income of customers in target market

Answer 17

analyzes the current economic environment; allows you to ensure that customers can afford to purchase your products/services

Question 18

Strategic Alignment

Answer 18

coordinating business resources and practices with the mission and environment; goal of it is to optimize performance and competitiveness and meet strategic goals