The net profit margin is net profit expressed as a Net profit margin (Net profit x 100) ÷ percentage of sales. Shows how effectively your business (%) Sales turns sales into profit. The break-even point is the point at which total revenue Fixed costs ÷ Gross Break-even point equals total expenses. Shows the minimum sales profit margin required to cover costs (i.e. to ‘break even’). Shows how much actual or forecasted sales exceed the Total sales break-even point. Shows how much you – ‘breathing room’ Margin of safety point have (i.e. how much sales can drop before you start making a loss). A measure of your business' liquidity (i.e. ability to repay Current assets ÷ Current Current ratio short-term debts). A ratio below 1 shows liquidity liabilities problems. Current trading Used to determine average monthly sales. Useful for Annual sales ÷ 12 level per month analysing and setting sales targets. [Overheads + drawings This ratio indicates the level of sales needed to achieve Budget sales + loan (principal)] ÷ the desired profit on drawings and the repayment of the level Gross profit margin principal. (Trade debtors x 365) ÷ This ratio approximates the average number of days Debtor days Credit sales per year debtors are outstanding. (Trade creditors x 365) ÷ This ratio approximates the average number of days Creditor days Credit purchases per creditors are outstanding. year (Closing stock x 365) ÷ This ratio approximates the number of days stock is held Days stock Material used or stock without replenishment. purchases This ratio is used to approximate the number of times in a Cost of goods sold ÷ Stock turnover year the stock turns over. Greater stock turn reduces Average stock value working capital. (Borrowed funds x 100) This ratio is used to ascertain the extent to which the total Gearing ratio (%) ÷ Total assets assets of the business are used for borrowed funds. Debt to equity Total liabilities ÷ This ratio shows the relative proportion of equity owner’s ratio equity and debt used to finance your assets. Owner’s business’s Asset turnover Total sales ÷ Total This ratio is used to show the extent to which total assets per annum assets are used to produce sales. Conclusion Key points for action plan (e.g. to raise with your ):
Net profit margin (%) (Net profit x 100) ÷ Sales The net profit margin is net profit expressed as a percentage of sales. Shows how effectively your business turns sales into profit. Break-even point Fixed costs ÷ Gross profit margin The break-even point is the point at which total revenue equals total expenses. Shows the minimum sales required to cover costs (i.e. to ‘break even’). Margin of safety Total sales – point Shows how much actual or forecasted sales exceed the break-even point. Shows how much ‘breathing room’ you have (i.e. how much sales can drop before you start making a loss). Current ratio Current assets ÷ Current liabilities A measure of your business' liquidity (i.e. ability to repay short-term debts). A ratio below 1 shows liquidity problems. Current trading level per month Annual sales ÷ 12 Used to determine average monthly sales. Useful for analysing and setting sales targets. Budget sales level [Overheads + drawings + loan (principal)] ÷ Gross profit margin This ratio indicates the level of sales needed to achieve the desired profit on drawings and the repayment of the principal. Debtor days (Trade debtors x 365) ÷ Credit sales per year This ratio approximates the average number of days debtors are outstanding. Creditor days (Trade creditors x 365) ÷ Credit purchases per year This ratio approximates the average number of days creditors are outstanding. Days stock (Closing stock x 365) ÷ Material used or stock purchases This ratio approximates the number of days stock is held without replenishment. Stock turnover Cost of goods sold ÷ Average stock value This ratio is used to approximate the number of times in a year the stock turns over. Greater stock turn reduces working capital. Gearing ratio (%) (Borrowed funds x 100) ÷ Total assets This ratio is used to ascertain the extent to which the total assets of the business are used for borrowed funds. Debt to equity ratio Total liabilities ÷ Owner’s equity This ratio shows the relative proportion of owner’s equity and debt used to finance your business’s assets. Asset turnover per annum Total sales ÷ Total assets This ratio is used to show the extent to which total assets are used to produce sales. Conclusion Key points for action plan (e.g. to raise with your ):
5.-Business-plan-template.logo_.docx