Key Financial Ratios (2012/13)

Some key indicators based on predicted EBIT (earnings before interest and tax) have been calculated on the 2012/13 client budget data. EBIT is a measure of profitability used across various businesses and industries. The average results for the top 20% of clients ranked on Return on Assets, along with the desired range are as follows:

Sales to Assets (sales/assets)               21%       10–20%

Interest Cover (EBIT/interest cost)        2.9         > 2

EBIT Margin (EBIT/sales)                     24%       20–30%

Return on Assets (EBIT/assets)             4.9%      2–6%

The first ratio is a measure of operating efficiency and capital utilisation, the second a measure of debt servicing ability (comfort factor), while the last two are a measure of profitability. EBIT Margin is also a reflection of the risk profile of the business, with a high figure representing low costs relative to income.

The results above show that the top performing clients can achieve financial ratios comparable to other medium – to – large businesses outside agriculture.

The top 20% of clients ranked on Return on Assets have 18% less capital employed in their business than average. There is little variation between the groups in terms of Sales to Assets, but the top 20% group have average Interest Cover 71% better than average and average EBIT Margin 50% better than average, due to lower cost structures.