The Analysis

An initial assessment session with your management team will focus on evaluating the current level of financial expertise, condition of the accounting system and staff talent levels, and what metrics your management team is using / not using, and the key performance variables that are understood to be important in your specific industry. This planning session will also cover such topics as:

  • Agreement on what metrics or variables are to be measured
  • CPA relationship, services available / used / not used
  • Credit requirements and banking support and relationship quality, terms and conditions.
  • How is business performance to be measured?
  • Establishing sound goals and objectives
  • Key manager performance
  • Evaluating marketing
  • Defining markets and market share
  • Financial projections

Once the above general items are understood and agreed upon, regular periodic analysis will ensue monthly or quarterly and can include the following:

Profitability Measures

  • Sales Growth & Trend
  • Income Proportionality
  • Gross Profit Growth & Trend
  • Gross Margin Trend
  • Operating Expense Trend
  • Operating Margin Trend
  • Net Income Trend
  • Return on Sales
  • Return on Assets
  • Return on Invested Capital
  • Return on Equity
  • Industry Peer Comparisons
  • Seasonality
  • Turn & Earn Analysis

[3 Examples]

Here for example is how we track sales by month as a percent of total year … a two-year running average to smooth out aberrations. It becomes a good forecasting tool.

A visual understanding of the major components of the income statement helps management stress the importance of expense controls in a thin net margin business.


  • Working Capital
  • Current Ratio
  • Quick Ratio


  • Asset Turnover
  • Inventory Turnover
  • Average Inventory Carry
  • Receivable Turnover
  • Average Collection Period
  • Trading Cycle
  • Trading Assets to Sales

Knowing the relationship of these asset levels in relation to sales volume protects the company from inadequate planning for funding the working capital required to support a given amount of sales growth.


  • Total Leverage
  • Funded Leverage
  • Leverage less Real Estate
  • Fixed to Worth