Business Insight & Cashflow

Cashflow Analysis
As a business owner, cash flow is one of, if not THE, most important aspect of your company. It is therefore a metric you always need to track & this is where cashflow analysis can help. It measures how much money is being made & spent at any given time. Strong cash flow means your business is operating comfortably within its means. When you’re cash-flow positive, you can pay your bills on time & maintain a good relationship with vendors & other stakeholders. Negative cash flow means your business is being stretched to a breaking point. Cash flow can be improved by:

- sending invoices straight away
- having a system in place to chase clients for payment
- consider offering an early payment discount
- conduct customer credit checks
- negotiate generous payment terms with suppliers
- use a business credit card (but pay off in full every month)
- ensure that you minimise the amount of stock you need to hold 
- consider leasing, rather than buying 

It is good practice for a business to forecast cashflow for up to the next 12 months, so large payments (tax bills, capital purchases, bonuses etc.) can be planned for & surplus cash put to good use.
Key Financial Ratios

Profitability Ratios

1) Gross Profit % of Sales (Gross Profit Margin)

Gross Profit  x 100


2) Operating Profit % of Sales (Net Profit Margin)

Operating Profit   x 100


3) Return on Capital Employed (ROCE)

Operating Profit    x 100

Capital Employed

Liquidity Ratios

4) Current Ratio

Current Assets

Current Liabilities

5) Quick Ratio

Current Assets - Stock

Current Liabilities

6) Inventory Turnover (in days)

Inventory         x 365

Cost of Sales

7) Receivables Collection Period (in days)

Receivables   x 365

Credit Sales

8) Payables Collection Period (in days)

Payables              x 365

Credit Purchases

9) Asset Turnover (times)


Total Assets - Current Assets

Financial Position Ratios

10) Gearing (%)

Long-term Liabilities    x 100

Total Equity + Long-Term Liabilities

11) Interest Cover Ratio (times interest is earned)



12) Dividend Cover Ratio

Profit less preference dividend