Key Financial Ratios (2014/15)

Some key indicators based on predicted EBIT (earnings before interest and tax) have been calculated on the 2014/15 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:

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.

An EBIT Margin of 10% means that $90 is spent to earn $100, while an EBIT Margin of 30% is a result of only $70 being spent to earn $100.

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 less variation between the groups in terms of EBIT Margin, but the top 20% group have average Interest Cover 50% better than average and average Sales to Assets 47% better than average, due to the leasing of land in conjunction with land which is owned.