All you need to know.

CCIFP keeps you one step ahead of the competition.

Glossary

Profitability ratios (e.g. gross profit margin, return on assets, return on equity) show how effectively your company is using its resources and curtailing costs to produce profits.

Liquidity ratios (e.g. current ratio) measure your firm’s ability to pay off short-term obligations as they become due.

Underbilling ratios (e.g. underbillings to equity ratio) measure the percentage of your company’s net worth represented by work performed but not yet billed. A ratio greater than 20 percent is considered unusual and would be a cause for concern. The underbillings to working capital ratio reveals the percentage of your working capital that is composed of underbillings.

Backlog ratios indicate how long it will take to complete work under contract (number of months in backlog) and the remaining gross profit not yet earned on contracts that haven’t been completed (backlog gross profit).

Asset utilization ratios measure the efficiency of your company’s use of its assets. For example, your fixed asset ratio will show to what extent fixed assets make up your company’s equity. If the percentage seems too high, creditors and sureties may regard your company’s investment in fixed assets as excessive.

Debt utilization ratios measure your company’s liabilities in relation to its asset base and earnings ability. For example, if your company has a high debt-to-equity ratio, it means that your company is financing its assets using a large amount of borrowed funds.

Key Financial Ratios

The Ratio	How It’s Calculated	What It Means
Current Ratio	Current Assets ÷ Current Liabilities	Will current assets be enough to meet current liabilities?
Return on Equity	Net Earnings (before income taxes) ÷ Total Net Worth	Are the assets effectively generating profits?
Equity to Overhead	Total Net Worth ÷ General & Administrative Expenses	Are the overhead expenses appropriate for the size of the company?
Gross Profit Margin	(Net Sales – Cost of Goods Sold) ÷ Sales	What’s the difference between revenues and cost of sales? Is it enough to meet selling and administrative expenses?
Debt-to-Equity	Total Liabilities ÷ Stockholders’ Equity (or Net Worth)	How heavily is the company leveraged?
Fixed Asset Ratio	Net Fixed Assets ÷ Total Net Worth	Does the business have enough liquid funds for current operations?
Return on Assets	Net Earnings (before income taxes) ÷ Average Total Assets	Are the assets being used effectively to generate profits?
Backlog to Working Capital	Average Backlog in Dollars ÷ (Current Assets – Current Liabilities)	How much accumulated committed work does the company have in relation to working capital?