Accounts receivable turnover sales on credit divided

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Unformatted text preview: le table compares the plan to industry standard financial profiles. Don’t expect your business to fit exactly into any standard category. For example, is the corner service station also a convenience store? Which category should it use? General profiles are based on averages, and no real business is ever average. As you include standard ratios in your plan, it is more important to explain how your company is different than to be able to match your company exactly to industry averages. Chapter 9: The Business You’re In lists sources for more information on business ratios, including standards for your type of business. Our sample company, for instance, has much higher Accounts Receivable than average, but less Inventory, and also lower Other Current Assets. Its Gross Margin is lower than the rest of the industry, but Profit Before Interest and Taxes is higher. In this case the plan text should explain why a well-run company might vary from average numbers. Some readers might worry about unrealistic financial forecasts. CHAPTER 17: FINISH THE FINANCIALS 17.3 Business Ratios Aside from profiles, there are also standard business ratios that people use to evaluate a specific business, regardless of its relationship to other businesses of the same kind. Gross margin, debt to equity, return on investment, and other ratios are widely used as general indicators of business performance or business health. After you’ve developed projections for sales, profits, cash, assets, liabilities, and capital, then you can generate many standard business ratios automatically. Business ratios are often misunderstood. They aren’t magic. Appropriate results vary from industry to industry. For example, a large manufacturing plant is going to have enormous assets compared to a small consulting company. Generally, the most important insight gained from ratios is the change in a ratio over time, rather than the specific number at any given time. While we do explain the standard financial ratios used...
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