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ARE 5.0 PcM Finance Equations with Targets
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Key Concepts:
Terms in this set (24)
Utilization Rate
Direct labor hours / Total labor hours
Overhead Rate
Total indirect expenses / Total direct labor
Net Multiplier
Net operating revenue / Total direct labor
Break-Even Rate
Overhead rate + 1.00 (unit cost for hour of salary)
Profit Earnings Ratio
Net profit / Net Operating Revenue
Net Revenue per Employee
Annual Net Operating Revenue / Total # of Employees
Aged accounts receivable
Average annual accounts receivable / (Net operating revenue / 365 days)
Solvency
Total current assets / Total current liabilities
Liquidity
(Cash + Accounts receivable +Work In Progress) / Total current liabilities
Leverage
Total liabilities / Total Equities (x 100 for %)
Return on Equity
(Total net operating revenue - Total expenses) / Total Equity
Net Profit
Gross revenue - (total labor + indirect expenses)
Net operating revenue
Gross revenue - project related expenses
Revenue factor
net multiplier x utilization rate
Return on overhead
net profit / indirect expenses
Revenue factor
net operating revenue / total labor dollars
Target Net Multiplier
3.0
Target Solvency / Current Ratio
1.0 - 1.5
Target Liquidity / Quick Ratio
1.3 - 1.5
Target Overhead Rate
1.3 - 1.5
Target Break-even rate
2.3 - 2.5
Targeted Net Profit Multiplier
Breakeven Multiplier/(1-Targeted Profit %) - Breakeven Multiplier
Targeted Net Multiplier
Breakeven Multiplier + Targeted Net Profit Multiplier
Employee Hourly Billing Rate
Hourly Salary x Targeted Net Multiplier
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