HYP_ Ass.1

Question 1

What are the 7 key Financial indicators?

Answer 1

• Utilization Rate
• Break Even Rate
• Overhead Rate
• Profit-to Loss
• Net Multiplier
• Net Revenue per Employee
• Aged Accounts Receivable

Question 2

Utilization Rate Formula

Answer 2

FORMULA: Hours billed to a project / (Hours billed to a project)+(Indirect Labor) x 100

TARGETS: All Staff – 60-65% ; professional/technical staff (including principals; 75% - 85%

MEASURES: overall effective use of labor; not a measure of productivity

Question 3

Overhead Rate Formula (EntreArchitect)

Answer 3

FORMULA: Total Indirect expenses / total direct labor

TARGET: 1.5 - 1.75 of direct labor

MEASURES: Cost of operating business, not billed through projects
NEED TO KNOW your overhead rate to know your appropriate billing rates and fees for your services, determines firms profitability

Question 4

Break - Even Rate Formula

Answer 4

FORMULA: Overhead rate + 1.0

TARGET: 2.5 - 2.75 (rate/percentage) of direct labor
MEASURES: This represents the unit cost of salaries; the cost of doing business for every dollar of salary you pay your employees

Example: Project manager earns $75,000 has an hourly labor rate of $36.06 —> ($75000 / 2080 hours) ; if your overhead rate is 1.5, the hourly break-even cost for that project manager would be $90.15 —->$36.06 x 1.5 + $36.06)

Question 5

Net Multiplier Formula

Answer 5

FORMULA: Net Operating Revenue / Total Direct Labor

TARGET: Typical Industry range - 2.75 - 3.25 or Better
Direct labor will be about 1/3 of NOR if office is efficient and effective

MEASURES: Net multiplier is a measure of your return on that investment
tells you how many dollars of revenue you are generating for every dollar you spend on direct labor

Question 6

Profit to Earnings (P/E) Ratio

Answer 6

Formula: profit before distributions and taxes / net operating revenue

TARGET: Equal to or greater than the anticipated profit in annual profit plan

MEASURES:- firms effectiveness in completing project profitably

• The higher the number the more profitable the firm is
• Profit = what remains after all expenses including salaries have been accounted for before non salary distributions are made to shareholders and income taxes

Question 7

Net Revenue per Employee

Answer 7

FORMULA: Annual net operating revenue / number of employees

TARGET: As high as possible

MEASURES: Revenue earnings per employee. Helps establish target for the net operating revenue in the budget for the coming year.