Finance metrics

Liquidity

Metric	Description
Cash Ratio	The strictest liquidity test: the share of current liabilities that could be paid today from cash and marketable investments alone.
Current Ratio	Whether the assets that turn into cash within a year cover the obligations due within a year.
Net Working Capital	The amount by which current assets exceed current liabilities: the cushion that funds day-to-day operations. It is the current ratio expressed in money instead of as a ratio.
Quick Ratio	Whether short-term obligations are covered without selling inventory: only cash, marketable investments and receivables count. Also called the acid-test ratio.
Trade Working Capital	The capital tied up in the operating cycle: what customers owe plus inventory, minus what is owed to suppliers. Its change over a period is the working-capital line in free cash flow.

Profitability

Metric	Description
Basic Earning Power	Earnings before interest and taxes per unit of assets: the earning power of the assets before financing and tax decisions enter.
EBIT	Earnings before interest and taxes: operating profit plus other income and expenses such as investment income and currency results. It is the profit available to pay lenders, the state and owners.
Operating Profit	What the core business earns: revenue minus the cost of what was sold and the cost of running the company, before financial items, other income and tax.
Return on Assets	How much net profit the company earns per unit of assets it uses, averaged over the period.
Return on Capital Employed	How well the company turns its long-term capital, equity plus long-term debt, into operating earnings. Because it uses EBIT, it compares companies regardless of how they are financed.
Return on Equity	The return owners earn on the capital they have in the business.
Return on Sales	The share of every unit of revenue that remains as operating profit, also called operating margin.

Leverage and solvency

Metric	Description
Debt Ratio	The share of assets financed by creditors rather than owners. It and the equity ratio add up to one.
Debt to EBIT	How many years of current earnings it would take to repay interest-bearing debt.
Debt to Equity	How many units of borrowed money, including payables, stand behind each unit of owners’ capital.
Equity Ratio	The share of assets financed by the owners. German lenders watch it closely as the Eigenkapitalquote; a low ratio limits further borrowing.
Interest Coverage Ratio	How many times earnings before interest and taxes cover the interest bill.
Net Worth	What remains for the owners once all liabilities are paid from the assets, at book value.

Efficiency

Metric	Description
Equity Turnover	How much revenue the owners’ capital generates. Together with return on sales it explains return on equity: ROE ≈ return on sales × equity turnover, before the difference between operating and net profit.
Inventory Turnover	How many times the average inventory is sold and replaced in the period. 365 divided by the annual figure gives days of inventory on hand.
Working Capital Turnover	How much revenue each unit of net working capital supports. Rising turnover means the business needs less tied-up capital to grow.

Cash flow

Metric	Description
Free Cash Flow to Equity	The cash left for the owners after reinvestment and after lenders are served: what could be paid out as dividends without new equity.
Free Cash Flow to Firm	The cash the operations generate after paying tax and reinvesting in fixed assets and working capital: what is available to all providers of capital, lenders and owners.

Line items

The building blocks of every metric, defined once and mapped to each chart of accounts.

Line item	Description
Cash and cash equivalents	Cash on hand and in bank accounts, plus deposits that can be withdrawn at short notice without loss of value.
Cost of sales	Direct cost of the goods and services sold in the period.
Current assets	Assets expected to turn into cash within a year: cash, short-term investments, receivables, inventory, prepayments.
Current liabilities	Obligations due within a year: trade payables, short-term borrowings, tax and payroll liabilities, accruals.
Equity	Owners’ stake: share capital, reserves and retained earnings, including the current year’s result.
Financial debt	Interest-bearing borrowings, short- and long-term: bank loans, overdrafts, bonds, lease liabilities.
Income tax	Tax on the period’s profit, current and deferred.
Interest expense	Interest charged on financial debt for the period.
Inventory	Raw materials, work in progress, finished goods and goods for resale, at cost.
Net profit	The period’s result after all income, expenses and taxes.
Non-current assets	Assets held for more than a year: intangible, tangible and long-term financial assets, net of accumulated depreciation.
Non-current liabilities	Obligations due after more than a year, mainly long-term borrowings and provisions.
Operating expenses	Costs of running the business that are not part of the cost of sales: personnel, premises, marketing, administration, depreciation.
Other income and expenses, net	Income and expenses outside the main operations, net: interest and investment income, currency gains and losses, gains and losses on disposals.
Revenue	Net sales of goods and services for the period, after discounts and allowances.
Short-term investments	Marketable securities and deposits held for less than a year that are not cash equivalents.
Total assets	Everything the company owns or controls: non-current plus current assets.
Total liabilities	Everything the company owes to others: current plus non-current liabilities.
Trade payables	Amounts owed to suppliers for goods and services already received.
Trade receivables	Amounts customers owe for goods and services already invoiced.

Charts of accounts

Chart	Description
Business Central	The chart of accounts in the Business Central evaluation (CRONUS) company, with Microsoft’s standard G/L account categories. Line items are mapped on categories and inherited by every account below them; individual accounts add line items where a category is too coarse, and a category or account can exclude a line item it would otherwise inherit.