Financial stuff Flashcards
Utilization Rate
= Total direct hours / total hours
= direct salary expense / total salary
Tells you the percent of time an employee spends on project-related work
Target = anything over 65%
Net Multiplier
= net operating revenue / total direct labor dollars
Can be re-written as:
= break even rate / inverse of target profit %
Tells you the revenue generated for each dollar spent on direct labor. Similar to overheard and break even rates, but with profit in the mix.
Target = over 3.0
Direct Labor
Wages or salaries billable to a specific project and client
Also shown as TIME (hours) billed to project work
Net operating revenue
= gross revenue - consultant fees - project related expenses
Dollar amount to operate your business
Direct salary expense
Direct salaries (amount paid for direct labor)
Excludes fringe benefits
Overhead Rate
= total indirect expenses / total direct labor dollars
Measures the cost of operations not directly billable to a project
Target = 1.3 to 1.5
Net service revenue
Operating revenue for one specific project
Gross revenue
Fees billed + reimbursable expenses billed
Current Ratio
= total assets / total liabilities
Measure of the firm’s ability to meet its current obligations
Target = 1.0 to 1.5
Liquidity
Quick ratio = (cash + short term investments + accounts receivable) / total current liabilities
Liquidity measures a firm’s ability to pay obligations that are expected to become due within the next year or operating cycle
Target: 1.0
Quick Ratio
= (Cash + Accounts Receivable + revenue billed not earned) / total current liabilities
Measures short-term liquidity
Net fee
= fees billed - outside consultants
See P/L statement
Revenue Projection based on this
Solvency
= total assets / total liability
Aka : current ratio
Measures a firm’s ability to pay current debt
Target: 1.0 to 1.5
Leverage
= total liabilities / total equity x 100
(Expressed as a percent)
Measures a firm’s ability to manage debt effectively
Aka: trading on the equity of the firm
Target : less than 35%
Return on Equity
= net income / average stockholder’s equity x 100
Measures the accumulated amount of money returned on a stockholder’s investment for their risks and efforts. A widely used profitability ratio.
Target: equal to or greater than the anticipated net profit
Accrual basis accounting
Snapshot of accounting status when expenses/costs and good/service provided/received. So it’s a longer term view that includes accounts receivable and payable.
Cash basis accounting
Based on that moment. When cash either comes in or goes out. Does not consider accounts payable or receivable, only income received or expenses paid (checkbook approach)
Indirect Labor
Wages or salaries NOT billable to a specific project and client
Also shown as TIME (hours) for non-project related work
Reimbursable Expenses
Project-related expenses that are invoices to the client, in addition to fees. These include a markup percentage, which is a form of revenue and included in NOR.
Direct Expenses
= direct labor + non-reimbursable expenses
Project-related expenses for a firm and it’s outside consultants that are not reimbursable, plus project-related expenses included in all lump-sum fee contracts.
Indirect Expenses
= indirect labor + indirect expenses
General and administrative (G & A) non-project-related operating expenses. Total indirect expenses includes indirect labor.
Break-Even Rate
= Overhead Rate + 1
Measures cost of operations for each dollar spent on direct labor
Target : 2.3 to 2.5
Aged Accounts Receivable
= Average annual accounts receivable / (NOR / 365 days)
Tells you the average number of days it takes to receive payment from invoice date. Used to gauge financial health of your clients.
Target : 45-60 days
Average Annual Accounts Receivable
Dollar value of accounts receivable at the end of each of the past 12 months divided by 12
