Management Ratios

 Key Ratios

• Profit as % of Capital Employed
• Profit as % of Sales
• Sales/Capital Employed
• Sales:Fixed Assets
• Sales:Stocks
• Sales per Employee
• Profit per Employee

How ratios can help - Diagnosis, Control, Forward Planning

Achieving the optimum balance

• Maximisation of profitable sales
• Minimisation of marketing costs
• Minimisation of assets used

How to improve the key ratios

• Increase sales without a corresponding increase in costs or assets
• If expansion is not possible, reduce costs or assets without a corresponding reduction in sales
• Improve overall contribution margin by increasing ratio of sales of high:low margin lines
• Review of product range - today's/yesterday's/tomorrow's bread winners

Subsiduary ratios - May be useful to break ratios down further eg office costs, etc

As a rule

It is better to have half a dozen ratios which are easily obtained, understood, considered and acted upon than many which are a burden to prepare and overwhelm.