Performance Highlights. Prepared for. MEGALO Hospitality. CLIENT Restaurant Client. Period. Jun Created on 10th June 2017

Transcription

1 Performance Highlights Prepared for CLIENT Restaurant Client Period Jun 2017 Created on 10th June 2017

2 Executive Summary OBSERVATIONS Comparing Jun 2017 with the same month last year Jun REVENUE Total Revenue $448,165 (Jun 2016: $393,300) Positive trend upwards. Average monthly revenue for the past 6 months is $514,802 PROFITABILITY EBIT Margin % 16.42% (Jun 2016: 6.89%) Positive trend upwards. Strategies to improve profitability include: increasing price, increasing sales volume, reducing cost of sales and reducing operating expenses. ACTIVITY Activity Ratio 4.24 times (Jun 2016: 5.27 times) Negative trend downwards. Strategies to improve the activity ratio include seeking ways to optimise the balance sheet, ie. by reducing the investment in working capital, selling-off any unused assets or by increasing sales using the same asset base. EFFICIENCY Return on Capital Employed 69.63% (Cost of Capital 7.5%) ROCE% is greater than the cost of capital (7.5%). When this is the case the business is creating value, when it is less than the cost of capital, value is destroyed. WORKING CAPITAL Cash Conversion Cycle days (Jun 2016: 9.00 days) Negative trend upwards. Strategies to improve cash conversion include: collecting debt faster, reducing inventory levels, billing work in progress faster and paying creditors slower. CASH FLOW Free Cash Flow $110,166 (Jun 2016: ($15,661)) Free Cash Flow is positive. After paying its operating expenses and investing for future growth (capital expenditures) the business has generated cash. This cash is available to be paid back to the suppliers of capital. MARGINAL CASH FLOW Net Variable Cash Flow 42.66% (Jun 2016: 40.27%) Net variable cash flow is positive. The business will generate cash from each additional $1 of products or services that the business sells. ALERTS The following KPIs have exceeded the alert levels: Accounts Payable Days Created by Page 2

3 KPI Results This chart shows KPIs grouped into performance perspectives - such as profitability, cash flow, growth, efficiency. Return on Cap. Employed Return on Assets Return on Equity AP Days GMROI Inventory Days AR Days Activity Ratio Working Capital Absorp. Asset Turnover Activity Efficiency Breakeven Margin Net Profit After Tax % Expense-to-Revenue Ratio Current Ratio Asset Usage 13 OFF TRACK Profitability Ratio Op. Profit % Quick Ratio Profitability Gross Profit % Cash Ratio Revenue OCF to Curr. Liabs Liquidity Jun 2017 Sort: By Perspective 69% 42 KPIs Value Economic Profit Debt to Equity Gearing Debt to Total Assets 29 Equity to Assets ON TRACK Growth Equilibrium Equity Change Cash Flow Growth Operating Cash Flow Free Cash Flow Net Cash Flow Cash on Hand Cash Flow Margin OCF to Net Income Net Variable Cash Flow Revenue Growth COS Change Expense Change Gross Profit Growth Op. Profit Growth EBIT Growth Net Income Growth Net Debt Change Created by Page 3

4 KPI Results This chart shows KPIs sorted by degree of importance. KPIs are classified as either low, medium, high or critical importance. Economic Profit Current Ratio Cash on Hand Asset Turnover Activity Ratio GMROI Free Cash Flow Inventory Days Growth Equilibrium Quick Ratio Net Cash Flow Equity to Assets Net Debt Change Equity Change Net Variable Cash Flow Medium Debt to Total Assets Debt to Equity OCF to Net Income 13 OFF TRACK Low Cash Flow Margin Return on Assets AR Days Return on Cap. Employed Return on Equity Jun 2017 Sort: By Importance 69% 42 KPIs Revenue Working Capital Absorp. Profitability Ratio 29 ON TRACK Critical Operating Cash Flow AP Days Breakeven Margin Gross Profit % Net Profit After Tax % High Cash Ratio COS Change EBIT Growth Expense Change Expense-to-Revenue Ratio Gross Profit Growth Net Income Growth OCF to Curr. Liabs Op. Profit % Op. Profit Growth Revenue Growth Created by Page 4

5 KPI Results 1 ALERT RESULT TARGET TREND IMPORTANCE A PROFITABILITY JUN 2017 vs JUN 2016 Total Revenue $448,165 $418, % Critical Gross Profit Margin 77.18% 75.48% 0.29% Critical Operating Profit Margin 16.42% 10.93% 9.53% High Profitability Ratio 16.42% 10.93% 9.53% Critical Expense-to-Revenue Ratio * 83.58% 89.07% -9.53% High Net Profit After Tax Margin 16.42% 10.93% 9.53% Critical Breakeven Margin of Safety $167,706 $109, % High B ACTIVITY Activity Ratio 4.24 times 2.00 times times Medium Accounts Receivable Days * 0.00 days days 0.00 days Low Inventory Days * days days days Medium Accounts Payable Days days days days High C EFFICIENCY Return on Equity 67.81% 15.00% 34.34% Medium Return on Assets 62.25% 20.00% 32.36% Medium Return on Capital Employed 69.63% 12.50% 33.33% Medium Gross Margin Return on Inventory 3,786.43% % % Medium D ASSET USAGE Asset Turnover 3.79 times 5.00 times times Medium Working Capital Absorption * 1.23% 25.00% 0.69% Medium E LIQUIDITY Current Ratio 4.21:1 2.00:1 2.64:1 Medium Quick Ratio 3.48:1 1.00:1 2.56:1 Low Cash Ratio 3.46:1 0.50:1 2.54:1 High Operating Cash Flow to Current Liabilities 0.72:1 1.00:1 0.80:1 High F GEARING Debt to Equity * 0.00% % 0.00% Low Debt to Total Assets * 0.00% 50.00% 0.00% Low Equity to Assets 89.40% 50.00% 7.05% Low Created by Page 5

6 KPI Results 1 ALERT RESULT TARGET TREND IMPORTANCE G CASH FLOW JUN 2017 vs JUN 2016 Operating Cash Flow $110,166 $10,000 $125,827 Critical Free Cash Flow $110,166 $10,000 $125,827 Medium Net Cash Flow $1,885 $10,000 $121,346 Medium Cash on Hand $528,014 $10, % Medium Cash Flow Margin 24.58% % 28.56% Low Operating Cash Flow to Net Income % % % Medium Net Variable Cash Flow 42.66% 0.00% 2.39% Medium H GROWTH Revenue Growth % -7.41% 13.28% High COS Change * % 0.25% 15.74% Critical Expense Change * -4.15% 0.25% 2.37% High Gross Profit Growth % -7.41% 12.24% High Operating Profit Growth % 0.17% 41.87% High EBIT Growth % % 41.87% High Net Income Growth % 0.17% 41.87% High Net Debt Change * -0.36% 0.00% % Medium Equity Change -2.63% 0.25% 5.16% Low Growth Equilibrium 67.81% 0.00% 34.34% Medium I VALUE Economic Profit $799, % Medium * For this metric, a result below target is favourable Alerts Accounts Payable Days Accounts Payable days are less than the alert level of days. An immediate review of creditor payments or supplier terms of payment may be required. Created by Page 6

7 Revenue Analysis Jun 2017 Target This Month Last Year $448,165 $418,550 $393,300 Last 3 Months vs Target $750K $500K $250K This Month $391K Apr 2017 Target $520K May $448K Cumulative Revenue (2017) Jun Revenue Mix (Jun 2017) Top 7 Revenue Accounts Food Rev Dinner $192,083 Bev Rev Wine $108,333 Bev Rev Liquor $45,833 Bev rev Non Alc $44,833 Bev Rev Beer $20,833 Food Rev Lunch $18,750 Food Rev Breakfast $17,500 Year-To-Date Actual Year-To-Date Target Year-To-Date Last Year $2,925,223 $2,908,528 $2,861,483 $7.5M $5M $2.5M Projection based on targets ($2,985,223) Projection based on previous 12 months ($5,684,690) This Year Last Year Jan 2017 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Created by Page 7

8 Profitability Revenue Breakeven Point Margin of Safety $448,165 $280,459 $167,706 Represents all income associated with the normal business operations Revenues and Costs $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 The breakeven point is the revenue level at which the company will commence to make a profit REVENUE VARIABLE COSTS FIXED COSTS Profitability can be further improved by improving price, volume, cost of sales and operating expense management. TOP 7 REVENUE ACCOUNTS Food Rev Dinner $192,083 Bev Rev Wine $108,333 Bev Rev Liquor $45,833 Bev rev Non Alc $44,833 Bev Rev Beer $20,833 Food Rev Lunch $18,750 Food Rev Breakfast $17,500 Represents the margin between the actual revenue level and the breakeven point. The amount by which revenues can drop before losses begin to be incurred. The higher the margin of safety, the lower the risk of incurring losses. Breakeven REVENUE $448,165 TOTAL EXPENSES $374,561 BREAKEVEN POINT $280,459 MARGIN OF SAFETY $167,706 VARIABLE EXP.56 PER $1 OF REV $123,090 FIXED COSTS TOP 10 EXPENSE & COS ACCOUNTS COGS Food Sales $58,333 Line Cooks $29,167 Rent $27,900 COGS Beverage Sales Wine $25,667 Employer Payroll Taxes $12,917 Amex $10,500 Servers $10,417 ER Health Insurance $10,000 S&W Floor Manager $9,900 MC/Visa $9,170 Created by Page 8

9 Profitability Last 3 Months Jun 2017 % of Revenue Mar 2017 Apr 2017 May 2017 Gross Profit $345, % $391,660 $295,237 $392,385 Operating Profit $73, % $94,406 $5,477 $108,281 Earnings Before Interest & Tax $73, % $94,406 $5,477 $108,281 Earnings After Tax $73, % $94,406 $5,477 $108, % 75% 50% 25% 0% -25% Jul 2016 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $150,000 Jul 2016 Aug Sep Oct Nov Dec Jan 2017 Aug Sep Oct Nov Dec Jan 2017 Gross Profit % Op. Profit % % Margins Net Profit After Tax % Feb Mar Apr May Jun Total Revenue vs Expenses Current Month Revenue $448,165 vs Total Expenses $272,310 Revenue Total Expenses Feb Mar Apr May Jun Earnings After Tax This Year vs Last Year Jun 2017 $73,604. Jun 2016 $27,089 This Year Last Year $100,000 $50,000 ($50,000) Jan 2017 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Created by Page 9

10 Cash Flow Operating Cash Flow Free Cash Flow Net Cash Flow $110,166 $110,166 $1,885 Operating cash flow is simply the cash generated by the operating activities of the business. Operating activities include the production, sales and delivery of the company's product and/or services as well as collecting payment from its customers and making payments to suppliers. add: add: add: add: add: add: Free cash flow is the cash generated by the business, after paying its expenses and investing for future growth. It is the cash left after subtracting capital expenditure from operating cash flow. The term "free cash flow" is used because this cash is free to be paid back to the suppliers of capital. Net cash flow is the cash left after subtracting expenditures from financing activities from the free cash flow. This includes the cash impact from financing activities. Financing activities include the inflow of cash from investors such as banks or shareholders, as well as the outflow of cash to shareholders as dividends. Cash Received Cash Spent $250,000 $500,000 Revenue Cost of Sales Expenses Other Income Cash Tax Paid Change in Accounts Payable Change in Other Current Liabilities Change in Accounts Receivable Change in Inventory Change in Work in Progress Change in Other Current Assets OPERATING CASHFLOW Change in Fixed Assets (ex. Depn and Amort) Change in Intangible Assets Change in Investment or Other Non-Current Assets FREE CASHFLOW Net Interest (after tax) Change in Other Non-Current Liabilities Dividends Change in Retained Earnings and Other Equity Adjustments NET CASHFLOW ($1,500) ($108,281) $1,885 $31,762 $6,300 $448,165 ($272,310) $110,166 $110,166 ($102,251) Net Cashflow = Change in Cash on Hand $1,885 ( Opening: $526,130 Closing: $528,014 ) - Change in Debt ( Opening: Closing: ) Created by Page 10

11 Cash Flow Last 3 Months Jun 2017 Mar 2017 Apr 2017 May 2017 Operating Cash Flow $110,166 $91,655 $17,931 $68,826 Free Cash Flow $110,166 $91,655 $17,931 $68,826 Net Cash Flow $1,885 $27,885 ($76,476) $63,349 Cash on Hand $528,014 $539,256 $462,781 $526,130 $150,000 $100,000 $50,000 ($50,000) ($100,000) $150,000 $100,000 $50,000 ($50,000) ($100,000) $750,000 $500,000 $250,000 Jul 2016 Jul 2016 Aug Sep Oct Nov Dec Jan Aug Sep Oct Nov Dec Jan Operating Cash Flow Current Month $110,166. Prior Month $68, Operating Cash Flow Feb Mar Apr May Jun Free Cash Flow Current Month $110,166. Prior Month $68,826 Free Cash Flow Feb Mar Apr May Jun Cash on Hand vs Accounts Receivable Current Month Cash on Hand $528,014 vs Accounts Receivable $2,500 Cash on Hand Accounts Receivable Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Created by Page 11

12 Growth Revenue Growth EBIT Growth Asset Change % % -0.31% A measure of the percentage change in Revenue for the period. Change in Key Drivers (from prior month) Revenue Down -13.8% EARNINGS BEFORE INTEREST & TAX $100,000 $75,000 $50,000 $25,000 Cost of Sales Down -19.8% A measure of the percentage change in EBIT for the period. Expenses Down -4.2% Receivable Days - GROWTH FROM Jan 2017 to Jun 2017 EFFICIENCY GAINS DECLINE TOTAL OPERATING INVESTMENT A measure of the percentage change in Total Assets for the period. Inventory Days Up 4 days QUALITY GROWTH STRESS $1,200,000 $1,225,000 $1,250,000 $1,275,000 $1,300,000 Payable Days Up 2 days Size of the circle shows the recency of the result. * EBIT $73,604; Total Operating Investment $1,286,022 Vertical position of the circle shows the growth in EBIT * Horizontal position of the circle shows the growth in Operating Created by Page 12

13 Financials INCOME STATEMENT Jun 2017 Jun 2016 Variance % Revenue $448,165 $393, % Cost of Sales $102,251 $90, % Gross Profit $345,914 $302, % Expenses $272,310 $275, % Operating Profit $73,604 $27, % Other Income - Other Expenses - Earnings Before Interest & Tax $73,604 $27, % Interest Income - Interest Expenses - Earnings Before Tax $73,604 $27, % Tax Expenses - Earnings After Tax $73,604 $27, % Adjustments - Net Income $73,604 $27, % Dividends - Retained Income $73,604 $27, % BALANCE SHEET Jun 2017 Jun 2016 Variance % Assets Cash & Equivalents $528,014 $179, % Accounts Receivable $2,500 - Inventory $108,000 $122, % Work in Progress - Other Current Assets $3,500 $3,500 0% Total Current Assets $642,014 $306, % Fixed Assets $796,500 $796,500 0% Intangible Assets - Investment or Other Non-Current Assets - Total Non-Current Assets $796,500 $796,500 0% Total Assets $1,438,514 $1,102, % Liabilities Short Term Debt - Accounts Payable $43,500 $97, % Tax Liability - Other Current Liabilities $108,992 $97, % Total Current Liabilities $152,492 $194, % Long Term Debt - Deferred Taxes - Other Non-Current Liabilities - Total Non-Current Liabilities - Total Liabilities $152,492 $194, % Equity Retained Earnings $1,212,418 $880, % Current Earnings $73,604 $27, % Other Equity - Total Equity $1,286,022 $907, % Total Liabilities & Equity $1,438,514 $1,102, % Created by Page 13

14 KPIs Explained Accounts Payable Days days A measure of how long it takes for the business to pay its creditors. A stable higher number of days is generally an indicator of good cash management. A longer time taken to pay creditors has a positive impact on Cash Flow. But an excessive lengthening in this ratio could indicate a problem with sufficiency of working capital to pay creditors. For this period, accounts payable days are below the target of days. Accounts Payable Days = Accounts Payable * Period Length / Cost of Sales Accounts Receivable Days 0.00 days A measure of how long it takes for the business to collect the amounts due from customers. A lower number indicates that it takes the business fewer days to collect its accounts receivable. A shorter time to collect debtors has a positive impact on Cash Flow. A higher number indicates that it takes longer to collect its accounts receivable. For this period, accounts receivable days are below the maximum target of days. Accounts Receivable Days = Accounts Receivable * Period Length / Revenue Activity Ratio 4.24 times A measure of the efficiency or effectiveness with which the business manages its resources or assets. This measure indicates the speed with which Net Operating Assets (Equity + Debt) are converted or turned into sales. This can be improved by optimising balance sheet efficiency, ie. by reducing the investment in working capital, selling-off any unused assets or by seeking ways to maximise the use of assets. For this period, the activity ratio has exceeded the target of 2.00 times. Activity Ratio = Annualised Revenue / Total Invested Capital Asset Turnover 3.79 times A measure of how effectively the business has used its assets to generate revenue. The business makes $ of sales for every $100 of its asset investment. The higher the number the better the turnover. Ways to improve this metric include increasing sales using the same asset base, using capital more efficiently, and/or improve cash management by reducing inventory and receivables. For this period, the Asset Turnover is less than the target of 5.00 times. Asset Turnover = Annualised Revenue / Total Assets Breakeven Margin of Safety $167,706 The breakeven safety margin represents the gap between the actual revenue level and the breakeven point. In other words, the amount by which revenue can drop before losses begin to be incurred. The higher the margin of safety, the lower the risk of incurring losses. For this period, the breakeven margin of safety is above the threshold of $109,097. Breakeven Margin of Safety = Revenue - Breakeven Sales Volume Cash Flow Margin 24.58% A measure of the company s ability to turn sales into cash. The business converts each $100 of sales into $24.58 of Operating Cash Flow. For this period, the Cash Flow Margin was less than the target of %. Cash Flow Margin = Operating Cash Flow / Revenue Created by Page 14

15 KPIs Explained Cash on Hand $528,014 A measure of the cash and cash equivalents in actual possession by the company at a particular time. At the end of this period the company held $528,014 of cash and cash equivalents. Cash on Hand is above the required target of $10,000. Cash on Hand = Cash & Equivalents Cash Ratio 3.46:1 The Cash Ratio measures the availability of cash and cash equivalents there are to cover current liabilities. Few businesses have sufficient cash and cash equivalents to fully cover current liabilities. Accordingly, a cash ratio of less than 1 is often acceptable. For this period, the cash ratio was 3.46:1, down from 4.30:1 last period and above the minimum target of 0.50:1. Cash Ratio = Cash & Equivalents / Total Current Liabilities COS Change % A measure of the percentage change in total cost of sales for the period. A significant increase in cost of sales may indicate the erroding of margins and should prompt action. While growing revenues, management need to monitor expense growth to ensure disciplined growth. For this period, expense growth of % was below the target of 0.25%. COS Change = (Cost of Sales - Prior Cost of Sales) / Prior Cost of Sales Current Ratio 4.21:1 A measure of liquidity. This measure compares the totals of the current assets and current liabilities. The higher the current ratio, the greater the 'cushion' between current obligations and the business's ability to pay them. Generally a current ratio of 2 or more is an indicator of good short-term financial strength. In other words, the current assets of the business should be at least double the current liabilities. For this period, the current ratio was 4.21:1, down from 5.29:1 last period and above the minimum target of 2.00:1. Current Ratio = Total Current Assets / Total Current Liabilities Debt to Equity 0.00% A measure of the proportion of funds that have either been invested by the owners (equity) or borrowed (debt) and used by the business to finance its assets. An appropriate mix of debt financing and equity financing will vary for each industry and business. Management are responsible to ensure that an appropriate balance between the two sources of financing is maintained. To improve this ratio, management can seek to internally generate profits and retain these profits to fund future growth, rather than borrowing additional funds. For each $100 of equity supplied by shareholders, the business is carrying.00 of debt. For this period, the debt to equity ratio is below the target of %. Debt to Equity = Total Debt / Total Equity Debt to Total Assets 0.00% A measure of the proportion of the business's assets that are financed through debt. The funds to pay for 0.00% of the business's assets have been supplied by creditors. For this period, the debt to total assets ratio is below the set target of 50.00%. Debt to Total Assets = Total Debt / Total Assets Created by Page 15

16 KPIs Explained EBIT Growth % A measure of the percentage change in EBIT for the period. A combination of growth in revenues and growth in profits presents a balanced measure of growth For this period, EBIT growth of % was less than the target of %. EBIT Growth = (Earnings Before Interest & Tax - Prior Earnings Before Interest & Tax) / Prior Earnings Before Interest & Tax Economic Profit $799,064 This measure is underpinned by the concept that a business only adds value for its shareholders if it makes a profit in excess of its cost of capital. Economic profit is calculated as the amount by which profits exceed or fall short of the required return for shareholders. A positive economic profit represents that the business is creating shareholder value. A negative economic profit means that the business is destroying shareholder value. For this period, the economic profit of $799,064 generated by the business exceeds the target of. Economic Profit = Annualised NOPAT - (Weighted Average Cost of Capital * Total Invested Capital) Equity Change -2.63% A measure of the percentage change in Total Equity for the period. Total Equity changed by -2.63%. For this period, change in equity was less than the target of 0.25%. Equity Change = (Total Equity - Opening Total Equity) / Opening Total Equity Equity to Assets 89.40% A measure of the proportion of the business's assets that are financed by shareholder's equity. The funds to pay for 89.40% of the business's assets have been supplied by shareholders. For this period, the equity to total assets ratio is above the set target of 50.00%. Equity to Assets = Total Equity / Total Assets Expense Change -4.15% A measure of the percentage change in total expenses for the period. While growing revenues, management need to monitor expenses. A significant increase in expenses may indicate the erroding of margins and should prompt action. For this period, expense growth of -4.15% was below the target of 0.25%. Expense Change = (Expenses - Prior Expenses) / Prior Expenses Expense-to-Revenue Ratio 83.58% A measure of how efficiently the business is conducting its operations. While growing revenues, management need to monitor the change in expenses. A significant rise in the expense-to-revenue ratio may indicate the erroding of margins and should prompt action. For this period, the expense-to-revenue ratio is below the target of 89.07%. Expense-to-Revenue Ratio = (Cost of Sales + Expenses) / Revenue Created by Page 16

17 KPIs Explained Free Cash Flow $110,166 Free cash flow is the cash generated by the business, after paying its expenses and investing for future growth. It is the cash left after subtracting capital expenditure from operating cash flow. The term free cash flow is used because this cash is free to be paid back to the suppliers of capital. Gross Margin Return on Inventory 3,786.43% A measure of the average amount that the inventory returns above its cost. GMROI assists to monitor the investment in inventory and the resulting gross margin earned by this investment. A result higher than 100% indicates that the business is selling its products for more than what it costs to acquire. For this period, the GMROI exceeds the target of %. Gross Margin Return on Inventory = Annualised Gross Profit / (Inventory + Opening Inventory) / 2 Gross Profit Growth % A measure of the percentage change in gross profit for the period. For this period, gross profit growth of % was less than the target of -7.41%. Gross Profit Growth = (Gross Profit - Prior Gross Profit) / Prior Gross Profit Gross Profit Margin 77.18% A measure of the proportion of revenue that is left after deducting all costs directly related to the sales. For each $100 in sales the business retains $77.18 after deducting the cost of sales. The gross profit serves as the source for paying operating expenses. The gross profit margin can be further improved by improving price, volume and cost of sales management. For this period, the gross profit margin % is above the required target of 75.48%. Gross Profit Margin = Gross Profit / Revenue Growth Equilibrium 67.81% A measure of the self-funding rate of growth the business can sustain from its retained earnings (assuming a constant debt-to-equity ratio). The growth equilibrium is also commonly known as the sustainable growth rate. When the actual growth rate is less than the sustainable growth rate this indicates that the business has sufficient cash to fund its own growth. When the actual growth rate is above the sustainable this indicates that only a portion of growth is being funded by retained earnings. Additional funding will be required from outside sources to fund the deficit. For this business, a growth of 67.81% can be self-funded. For this period, the growth equilibrium exceeded the target of 0.00%. Growth Equilibrium = Annualised Retained Income / Opening Total Equity Inventory Days days A measure of how efficiently the business converts inventory into sales. A lower number of days is generally an indicator of good inventory management. A shorter time holding inventory has a positive impact on cash flow. But a low result can also mean there is a shortage of inventory. Conversely, a high result may indicate overstocking. For this period, inventory days are above the maximum target of days. Inventory Days = Inventory * Period Length / Cost of Sales Created by Page 17

18 KPIs Explained Net Cash Flow $1,885 Net cash flow is the cash left after subtracting expenditures from financing activities from the free cash flow. Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends. Net Debt Change -0.36% A measure of the percentage change in Net Debt for the period. Net Debt is calculated as Total Debt (short-term and long-term debt) less Cash & Equivalents. For this period, change in debt of -0.36% was less than the target of 0.00%. Net Debt Change = (Net Debt - Prior Net Debt) / Prior Net Debt Net Income Growth % A measure of the percentage change in Net Income for the period. Typically growth in Net Income is driven by growth in revenues and/or productivity. For this period, Net Income growth of % was less than the target of 0.17%. Net Income Growth = (Net Income - Prior Net Income) / Prior Net Income Net Profit After Tax Margin 16.42% A measure of the proportion of revenue that is left after all expenses have been paid. The business makes $16.42 of net profit for every $100 it generates in revenue. For this period, the Net Profit After Tax margin is above the required target. A higher result indicates that the business is better prepared to handle down-turns. Net Profit After Tax Margin = Earnings After Tax / Revenue Net Variable Cash Flow 42.66% A measure of the additional cash that will either be generated or used up by the next $100 of products or services that the business sells. If the Net Variable Cash Flow is positive then for every additional $100 of revenue the business will generate cash. If the Net Variable Cash Flow is negative then for every additional $100 of revenue the business will require additional cash funding. For this period, the Net Variable Cash Flow exceeded the target of 0.00%. The Net Variable Cash Flow is 42.66% of gross revenue. Each additional $100 of Revenue will generate $42.66 of cash. Net Variable Cash Flow = (Annualised Revenue - Annualised Variable COS - Annualised Variable Expenses - Operating Working Capital) / Annualised Revenue Operating Cash Flow $110,166 Operating cash flow is simply the cash generated by the operating activities of the business. Operating activities include the production, sales and delivery of the company s product and/or services as well as collecting payment from its customers and making payment to suppliers. Operating Cash Flow to Current Liabilities 0.72:1 Operating Cash Flow to Current Liabilities is a measure of how well current liabilities are covered by the cash flow generated from operational activities. This metric provides a useful indicator of a business's liquidity in the short-term. Using cash flow rather than profit provides a better indication of liquidity because cash is means by which short-term obligations are normally paid. For this period, the cash ratio was 0.72:1, up from 0.56:1 last period and below the minimum target of 1.00:1. Operating Cash Flow to Current Liabilities = Annualised Operating Cash Flow / Total Current Liabilities Created by Page 18

19 KPIs Explained Operating Cash Flow to Net Income % A measure of the company s ability to turn Net Income in to Operating Cash Flow. The business converts each $100 of Net Income into $ of Operating Cash Flow. For this period, the conversion of Net Income to Operating Cash Flow was less than the target of %. Operating Cash Flow to Net Income = Operating Cash Flow / Net Income Operating Profit Growth % A measure of the percentage change in operating profit for the period. For this period, operating profit growth of % was less than the target of 0.17%. Operating Profit Growth = (Operating Profit - Prior Operating Profit) / Prior Operating Profit Operating Profit Margin 16.42% A measure of the proportion of revenue that is left after deducting all operating expenses. This reveals the operating efficiency of the business. The business converts each $100 of sales into $16.42 of profits. The operating profit margin can be further improved by improving price, volume, cost of sales and expense management. For this period, the operating profit margin is above the required target of 10.93%. Operating Profit Margin = Operating Profit / Revenue Profitability Ratio 16.42% A measure of the proportion of revenue that is left after deducting all expenses. This excludes finance costs and tax expenses. The business makes $16.42 of EBIT for every $100 it generates of revenue. The profitability ratio can be further improved by improving price, volume, cost and expense management. For this period, the Profitability ratio is above the required target of 10.93%. Profitability Ratio = Earnings Before Interest & Tax / Revenue Quick Ratio 3.48:1 The Quick Ratio measures the availability of assets which can quickly be converted into cash to cover current liabilities. Inventory and other less liquid current assets are excluded from this calculation. The Quick Ratio is a measure of the ability to pay short-term creditors immediately from liquid assets. A quick ratio of 1:1 or more is considered 'safe'. For this period, the quick ratio was 3.48:1, down from 4.32:1 last period and above the minimum target of 1.00:1. Quick Ratio = (Cash & Equivalents + Accounts Receivable) / Total Current Liabilities Return on Assets 62.25% A measure of how effectively the business has used its assets to generate profits. Return on Assets is a performance measure which is independent of the business's capital structure. The higher the ratio the greater the return on assets. For this period, the business has generated a Return on Assets of 62.25%. This return exceeds the target of 20.00%. Return on Assets = Annualised Earnings Before Interest & Tax / Total Assets Created by Page 19

20 KPIs Explained Return on Capital Employed 69.63% A measure of the efficiency and profitability of capital investment (ie. funds provided by shareholders & lenders). ROCE monitors the relationship between the capital ('inputs') used by the business and the earnings ('outputs') generated by the business. ROCE is arguably one of the most important performance measures. The higher the result the greater the return to providers of capital. For this period, the business has generated a ROCE of 69.63%. This return exceeds the target of 12.50%. Return on Capital Employed = Annualised Earnings Before Interest & Tax / Total Invested Capital Return on Equity 67.81% A measure of how effectively the business has used the resources provided by its owners to generate profits. The higher the ratio the greater the rate of return for shareholders. For this period, the business has generated a Return on Equity of 67.81%. This return exceeds the target of 15.00%. Return on Equity = Annualised Net Income / Opening Total Equity Revenue Growth % A measure of the percentage change in revenue for the period. Management should ensure that revenues increase at rates higher than general economic growth rates (ie. inflation). For this period, revenue growth of % was below the target growth of -7.41%. Revenue Growth = (Revenue - Prior Revenue) / Prior Revenue Total Revenue $448,165 A measure of the total amount of money received by the company for goods sold or services provided. The business has earned total revenues of $448,165. Strategies to improve revenue may include increasing prices, increasing the volume of sales through marketing initiatives or finding alternative sources of income. For this period, the revenue earned is above the required target of $418,550. Working Capital Absorption 1.23% A measure of the adequacy of working capital to support sales activity. This measure indicates the investment made in working capital for each unit of revenue. The trend of this ratio is particularly useful for growing businesses. If sales increase rapidly but working capital levels remain constant, the business may be at risk that insufficient working capital is available to support this growth. Moreover, if the result for this metric is greater than the Gross Profit Margin %, then for every additional unit of Revenue generated, additional cash will be required. For this period, Working Capital Absorption is less than the target of 25.00%. Working Capital Absorption = (Accounts Receivable + Inventory + Work in Progress - Accounts Payable) / Annualised Revenue Created by Page 20