Financial Formulas Flashcards
Utilization Rate
Direct hours / total labor hours
Ex. 32hr / 40hr = 80%
Target is 60-65% firm wide
75/85% technical staff
Overhead Rate
Total indirect expenses (and labor) / total direct labor
Ex $308,241 / $200,914 = 1.53
Target 1.30-1.50
Break-even rate
Overhead rate + 1.00
Ex 1.53 + 1.00 = 2.53
Target 2.30-2.50
Net multiplier
Net operating revenue / total direct labor
Ex $622,207 / $200,914 = 3.10
Target >3.0
Profit to earnings ratio
Net profit (before distributions and tax) / net operating revenue
Ex. $108,817 / $622,207 = 17.49%
Target >20%
Net revenue per employee
Annual net operating revenue / total number of employees
Ex. $622,207 / 6 emp = $103,701 per employee
Target >$100,000
Aged accounts receivable
Average annual accounts receivable / (net operating revenue / 365 days) = calendar days before payment is received
Ex. $245,090 / ($622,207 / 365 = 1,705) = 144 cal days
Target 60-90 days
Solvency
A firms ability to pay current debt also known as “current ratio”
Total current assets / total current liabilities
Ex. $521,667 / $218,658 = 2.39
Target min 1.5 to 1.0
Liquidity
Measures a firm’s ability to convert assets to cash. also known as “quick ratio”
Cash + accounts receivable + revenue earned (unbilled) / total current liabilities
Ex $518,194 / $218,658 = 2.37
Target min 1.0
Leverage
Measures a firm‘s ability to manage debt effectively also known as debt to equity
Total liabilities / total equity X 100 (as %)
Ex. $280,738 / $949,451 = 29.57%
Target <35%
Return on equity
Measures the accumulated amount of money returned on the stockholders investment for their risk and efforts
Total net operating revenue - total expenses /total equity X 100 (as %)
Ex. ($622,207 - $509,156) / $949,451
Target 20%
