Good Performance Model

A Good Performance Model brings all key operating ratios to Return on Total Assets => 12.5%.

See ROTA.

Worked Example:

Income statement:

Sales: 1,250,000

Operating Costs:
Materials : 455,000
Labor & Addons: 310,000
Plant overheads: 175,000
Admin/Selling: 135,000
Total Operating costs: 1,075,000
EBIT: 175,000.

Balance sheet:

Fixed Assets:
Net fixed assets: 475,000
Investments: 75,000
Intangibles: 0

Current Assets:
Cash: 32,500
Inventory: 137,500
Accounts Receivable: 135,000
Miscellaneous CA: 15,500

Total Assets: 870,500

ROTA = 175,000/870,500 = 20.1%.

Operating Ratios:
Sales Margin = 175,000/1250,000 = 14.0%
Materials/Sales = 455,000/1250000 = 36.4%
Labor/Sales = 310,000/1250000 = 24.8%
Plant overheads/Sales = 175,000/1250000 = 14.0%
Admin & Selling/Sales = 135,000/1250000 = 10.8%

Balance Sheet Ratios:
Sales/Total Assets = 1,250,000/870,500 =1.44 times.
Sales/Fixed Assets = 1250000/475,000 = 2.63 times.
Sales/Inventories = 1250000/137,500 = 9.09 times.
Sales/Accounts Receivable = 1250000/135,000 = 9.26 times.

Reference Pages

Self Financing Growth

Working Capital Sums