Financial review—Ratios

Sage 100 Contractor uses the ledger account balances to create the ratio for a fiscal period. Use the ratios to identify long term trends or potential problems.

The following list provides definitions of menu items under 13-1 Financial Review > Ratio:

• Current Ratio—Measures the relationship between the current assets and current liabilities.
  Definition of Current Ratio: Current Assets/Current Liabilities by fiscal period.
• Quick Ratio—Measures the relationship of liquid assets to current liabilities, indicating the short-term debt paying ability.
  Definition of Quick Ratio: (Current Assets – Inventory)/Current Liabilities by fiscal period.
• Gross Profit/Sales—Measures the relationship between gross profit and sales dollars.
  Definition of Gross Profit/Sales: (Gross Profit + Other Income)/(Total Operating Income +Other Income) by fiscal period)
• Net Profit/Sales - Measures the relationship between net profit and sales dollars.
  Definition of Net Profit/Sales: Net Income Before Tax/ (Total Operating Income + Other Income) by fiscal period.
• Net Profit/Equity—Measures the amount of income earned for each dollar invested.
  Definition of Net Profit: (Operating Income + Other Income) – (Direct Expense + Equip/Shop Expense + Overhead Expense + Admin Expense).
  Definition of Equity: (Equity + Operating Income + Other Income) – (Direct Expense + Equip/Shop Expense + Overhead Expense + Admin Expense). Note: The Equity amount excludes Owner’s Draw accounts.
• Current Assets/Total Assets—Measures the relationship between the short-term assets and long-term assets.
  Definition of Current Assets: Cash + Current Assets + WIP.
  Definition of Total Assets: Cash + Current Assets + Wip + Other Assets + Fixed Assets – Accum.Depreciation.
• Return on Assets—Measures the earning power or the profitability of a company’s assets.
  Definition of Return on Assets: Total Income—Direct + Shop/Equip + Overhead + Admin Expense / Cash + Current Assets + Wip—Accum. Depreciation.
• Debt/Worth - Measures the relationship of debt financing to equity financing, or how much a company is leveraged.
  Definition of Debt: Total liabilities.
  Definition of Worth: Equity + Total Income—(Direct + Shop/Equip + Overhead + Admin Expense).
• Debt/Assets—Measures the percentage of total assets represented by liabilities.
  Definition of Debt: Total liabilities.
  Definition of Assets: Cash + Current Assets + Wip + Other Assets + Fixed Assets—Accum. Depreciation.
• Overhead/Direct Expense—Measures the relationship of overhead expenses to job expenses. Total Indirect Expense/Total Direct Expense.
  Definition of Indirect Expense: Overhead + Administrative Expenses.
  Definition of Direct Expense: Direct +Equipment + Shop Expenses