Demystify your numbers and keep on top of your underlying business health
Business health indicators in an instant
Successful businesses do one thing consistently; and that’s understanding, and knowing their key business numbers. Jazoodle keeps track of 28 key metrics within your business, across profitability, liquidity, efficiency, asset utilisation, solvency, and financial structure. Your numbers are tracked graphically, and over time, and traffic lights highlight the areas of your business that may need attention. It couldn’t be simpler!
Powerful business health barometer
Instantly understand the overall health of your business, and see how this changes over time! The Jazoodle health barometer is updated every time you update your accounting system and instantly gives you an insight into potential future risks or opportunities. Your aim is to score above 1.8 This figure is the magic number, above which, shows little potential of financial distress in the next 2 years. Peace of mind and early warning in one measure!
Traffic light indicators highlighted
All metrics and indicators are highlighted with our traffic light system, instantly giving you areas for attention or comfort. Next to each traffic light is a comprehensive help file, explaining what each score and traffic light means. This saves you time in really getting under the hood of your business risks and opportunities
Performance metrics FAQs
You will also see your business health barometer. This instantly tells you how your business is performing, and you should aim to reach a score above 1.80 – that score indicates a relatively stable and strong business. The barometer measures several areas of your business and combines these measures into a single health score. This score has been tested over very many years and is seen as a good indicator of deep down business health and forerunner of any looming business distress
Net Profit Margin describes the amount of value generated by a business within a period after all direct cost of sales, general overheads/expenses, and financing costs are considered. Net profit does not necessarily indicate the positive levels of cash generated by a business. However, it is a reliable time-based measure for gaining an understanding into the overall value that the business is providing to its stakeholders. Jazoodle uses the derived Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) figure for its net profit margin calculations. This helps dilute the effect of accounting choices on core performance. If you find your net profit margins changing, this either will be because of a change in your gross margins (see above) or equally, that your general expenses, wages or other non-direct costs are changing. If net margins are reducing, check one of the other measures such as COGS: EBITDA (to check direct cost of sales costs), or Expenses:EBITDA (to check general expenses trends).Note – if both of the COGS:EBITDA and EXPENSES:EBITDA measures are stable, then there may not be a problem at all – and could be accounted for by an increase in depreciation following an asset purchase. Check this out by assessing the Expenses:Net Profit measure
EPS (Earnings Per Share): For public companies, Earnings Per Share is a measure that assesses how much revenue is earned in relation to its underlying equity capital structure. The higher the EPS, the better the general health of the business. Please note, it is not possible for Jazoodle to identify how many shares may have been issued by the company. For this reason, it has been assumed that the number of shares issued in a business is equal to the shareholders’ capital amounts. Thus, we assume shares are $1 or £1 per share.. This may not be accurate but, if used consistently over time, should provide a great way of understanding underlying profit performance, relative to the amount of funds that have been invested in the business from an equity perspective
Interest Coverage This measures the ability for a company to service its debt from normal operations and is based on the EBITDA measure of profitability, i.e. not influenced by accounting choices. Ideally a level above 1 is considered to be the very minimum that should be looked for in a company.
PE (Price/Earnings) Ratio Based upon the assumptions used to create the EPS measure, this calculation is also based upon a strict asset value of the business and relates to the number of shares that are assumed to have been issued,and is then related to the EPS measure outlined above. Generally, the higher the Price/Earnings ratio the more likely it is that the company will be expected to further improve its performance in future years.
EPS (Earnings Per Share) For public companies, Earnings Per Share is a measure that assesses how much revenue is earned in relation to its underlying equity capital structure. The higher the EPS, the better the general health of the business. Please note, it is not possible for Jazoodle to identify how many shares may have been issued by the company. For this reason, it has been assumed that the number of shares issued in a business is equal to the shareholders’ capital amounts. Thus, we assume shares are $1 or £1 per share.. This may not be accurate but, if used consistently over time, should provide a great way of understanding underlying profit performance, relative to the amount of funds that have been invested in the business from an equity perspective
Expenses:Net Profit This ratio is as per the Expenses : EBITDA measure, but with the effects of depreciation, and accounting choices also considered. This will help identify if core overheads are under control and stable, over time. When assessing this measure, also be aware that an increase in staffing may have contributed to the outcome, perhaps in anticipation of an expansion in the business or major sales push, but has yet to impact the accounts or base performance indicators.
COGS:Net Profit This ratio is as per the COGS:EBITDA measure, but with the effects of depreciation and accounting choices also taken into account. For instance, if COGS:Net Profit is falling, but Expenses:EBITDA is stable, this may indicate that depreciation expense is increasing, which in turn could either mean a capital investment program (which could be positive for the business) or change in depreciation policy (which could have a negative impact). This measure should also be assessed in conjunction with changes in other expenses, which may indicate if financing costs are increasing. For example, the Debt : Equity measure could be checked to confirm if this is the case.
Expenses:EBITDA If your net profit margins are falling, the relationship between Expenses and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) will help identify if there is an issue with general overheads and expenses, especially if the COGS:EBITDA or Net Profit measures are stable or reducing.
COGS:EBITDA Compares the Cost of Goods Sold (COGS) in relation to Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). If net margins are falling, this will partially show you if the problem is in stock purchasing, or as a result of general overhead problems. Please read in conjunction with the gross profit margin definition
We use EBITDA or earnings before interest, tax, depreciation and amortisation as a solid measure that is not affected by any asset or capital purchasing or the finance derived to purchase such assets or capital equipment or the effect of a good prior year and increased tax bill
Your business gross profit margin is a measure of how well you are managing all the costs associated with your cost of sales – different industries have different expectations of adequate gross profit margins. For instance, a business such as a supermarket, may work on smaller margins than a services type business. If you find gross margins reducing, this could indicate either that you are having to discount to win business or alternatively, your direct costs (stock, labour etc) is rising. This can be confirmed with another measure in Jazoodle, COGS : EBITDA which measures the proportion of your input costs to overall profitability
The Quick Ratio overcomes some of the issues with the Liquidity Ratio measure and only assesses those assets which have the potential to be liquidated quickly. This ratio ideally should not include inventories as sales of inventory rarely achieve the value that may be on the books. A figure above 1 again is considered to be acceptable. However, the higher the value, the better.
The Liquidity Ratio gives a relative measure of liabilities compared to assets. Generally, you would be looking for a figure greater than 1, for instance a company has at least enough assets to cover its liabilities. However, it is very important to also understand how liquid these assets are. For instance, if all of the creditors demanded payment at the same time, how much could realistically be raised in enough time to pay them? Would this cover the liabilities? Overcoming this can be achieved by using a Quick Ratio (see above). Please also note that some industries traditionally trade on very low or high measures.
The Cashflow to Total Assets indicator provides an understanding of how cash is generated relative to the asset base of the company. Generally, the higher the indicator, the more efficient the asset base of the company is in generating revenues. Generally, this should be greater than 1 – i.e. $1 of asset generates $1 of revenue. Please note, that as Jazoodle does not import cashflow statements, the cashflow has been modelled from operating activities using a standard formula and will not exactly match the figures that you may see reported in your Statement of Cashflows from your accounting package.
Days Sales in Receivables Taking the Receivable Turnover (RT) ratio further, it’s possible to estimate the number of days it takes to recover trade debtors’ accounts. The higher the figure, the less efficient the business is in collecting its client debts. Watch for his over time and look for any deterioration. An overhaul of accounts receivables processes or client communications may be needed. Alternatively, it could reflect the winning of a large account, with a client who perhaps takes longer than average to pay, but who may always do so. If this is possibly the case, assess in conjunction with other measures, such as profitability measures or liquidity measures.
Inventory Turnover Period (INVTURN) If stock is held for sale, a critical measure is likely to be the Inventory Turnover Ratio, or the measure of how quickly stock sells over time. The larger the measure, the older the stock is likely to be. Therefore, should a competitor launch a better product, a company may be saddled with stock it cannot sell.
Asset Turnover Ratio (ATR) This is a great measure to use to help assess the effectiveness of a business to generate cash/sales from its asset investments. Look for an increase over time. Generally, a figure greater than 1 (preferably a lot greater) is advantageous and shows that a company has generally invested wisely in its capital investments. If this measure declines over time, it is worth understanding where the decline is coming from. For instance, if Return on Assets is also falling, it is worth questioning whether the decline is coming from a reduction in profit margins or a change in asset turnover – or even a combination of the two.
Receivables Turnover (RT) The Receivables Turnover measure assesses the level of cash sales relative to credit. For instance, if total sales are $100 and a company has $50 in accounts receivables, the measure would be 2 – or cash sales are twice as common as credit sales. A low figure may indicate that underlying cashflow issues may surface from time to time. Please note that it is not possible for Jazoodle to identify how many sales are created by offering credit to a company’s customers. However, this can be estimated by relating the total revenue to the number of debtors that a business currently has in place. Therefore, the Receivables Turnover is based upon this assumption.
Return on Assets (After Tax) Return on Assets (ROA) is useful for understanding underlying business performance. Check for decreases or increases over time. Is the current figure adequate – which should be above the cost of capital (debt or equity)? ROA will be directly affected by revenues and costs, and therefore profit margins over time.
Return on Equity After Tax (REAT) indicates how profitable the company is based upon the generation of revenue from shareholder equity. Assess this over time and look for increasing or declining trends. Should there be changes in this, assess revenue or costs trends. If these are consistent, and returns are still changing, assess the total amounts of equity for the business over the same period. Has this changed disproportionately to revenue / cost changes? Finally, the ROE, if all other areas are consistent, could indicate a greater reliance on debt financing over time. Please see notes on Gearing too (detailed below).
Debit to Equity (DTE) This measures the total amount of debt the company is carrying, relative to the amount of total equity within it. A figure greater than 1 shows the company is mainly structured via debt instruments. If the indicator is below 1, the company is mainly equity-based. Use this measure to assess the appetite of debt funding. If the figure is too high this could indicate a risk, with the company being too highly geared or reliant on debt funding