Performance Cheat Sheet

I think the Performance Cheat Sheet is a very comprehensive and well-rounded resource for anyone who wants to understand and measure performance. It covers a wide range of metrics, from overall performance to profitability to cash flow. The cheat sheet also includes some more advanced concepts, such as DuPont analysis and EVA, which can be helpful for more experienced users.

A performance cheat sheet that includes the following is a comprehensive and valuable resource for anyone interested in understanding and measuring business performance:

• 5 Performance KPIs:?These are key metrics that can be used to track the overall health and performance of a business. Some common examples include revenue growth, profit margin, customer satisfaction, and employee engagement.
• 12 Profitability KPIs:?These metrics measure the profitability of a business's operations. Some examples include gross profit margin, operating profit margin, net profit margin, return on assets (ROA), and return on equity (ROE).
• The Financial Performance Ratios:?These ratios compare different financial metrics to provide insights into a business's financial performance. Some common examples include debt-to-equity ratio, current ratio, and quick ratio.
• The DuPont Analysis:?This analysis breaks down ROA into its component parts, providing insights into how a business is generating profits.
• Project Profitability (NPV, IRR, PP, PI):?These metrics are used to evaluate the profitability of potential projects.
• Gross Profit vs. Contribution Margin:?These two metrics measure different aspects of a business's profitability. Gross profit margin measures the profitability of the products or services that a business sells, while contribution margin measures the profitability of each unit sold.
• EBITDA vs. EVA:?These two metrics measure different aspects of a business's profitability. EBITDA measures the profitability of a business's operations before interest, taxes, depreciation, and amortization, while EVA measures the profitability of a business's operations after taking into account capital costs.
• 5 Cash Flow Ratios:?These ratios measure the relationship between cash flow and other financial metrics. Some common examples include free cash flow to equity ratio, cash conversion cycle, and operating cash flow to sales ratio.
• 5 EBITDA Ratios:?These ratios measure the relationship between EBITDA and other financial metrics. Some common examples include EBITDA margin, EBITDA to debt ratio, and EBITDA to assets ratio.

This cheat sheet can be used by a variety of stakeholders, including:

• Business owners:?To track the performance of their businesses and identify areas for improvement.
• Investors:?To evaluate the financial performance of potential investments.
• Financial analysts:?To assess the financial performance of businesses and industries.
• Management teams:?To develop and implement strategies to improve the performance of their businesses.

Here is a more detailed analysis of each of the categories in the cheat sheet:

5 Performance KPIs:

• Revenue growth: This metric measures how quickly a company's revenue is growing. It is a good indicator of overall performance and growth potential.
• Profit margin: This metric measures how much profit a company makes on its revenue. It is a good indicator of profitability and efficiency.
• Return on equity (ROE): This metric measures how much profit a company makes on its shareholders' equity. It is a good indicator of how well a company is using its assets to generate returns.
• Free cash flow: This metric measures the amount of cash that a company generates after accounting for all of its expenses and investments. It is a good indicator of a company's financial health and ability to invest in its future.
• Customer satisfaction: This metric measures how satisfied customers are with a company's products or services. It is a good indicator of a company's ability to retain customers and generate repeat business.

The 5 Performance KPIs are:

• Revenue growth: This measures how much revenue a company is generating over time. Profit margin: This measures how much profit a company is making on each dollar of revenue. Customer satisfaction: This measures how satisfied customers are with a company's products or services. Employee satisfaction: This measures how satisfied employees are with their jobs and the company they work for. Market share: This measures how much of the market a company controls.

12 Profitability KPIs:

• Gross profit margin: This metric measures how much profit a company makes on its sales after accounting for the cost of goods sold.
• Operating profit margin: This metric measures how much profit a company makes on its sales after accounting for all of its operating expenses.
• Net profit margin: This metric measures how much profit a company makes on its sales after accounting for all of its expenses, including taxes.
• Return on assets (ROA): This metric measures how much profit a company makes on its assets.
• Earnings before interest, taxes, depreciation, and amortization (EBITDA): This metric measures the operating profitability of a company before accounting for interest, taxes, depreciation, and amortization.
• Adjusted EBITDA: This metric is similar to EBITDA, but it excludes certain non-cash expenses.
• Net operating profit after tax (NOPAT): This metric measures the operating profitability of a company after accounting for all of its expenses, including taxes.
• Economic value added (EVA): This metric measures the value that a company creates for its shareholders above and beyond its cost of capital.
• Return on invested capital (ROIC): This metric measures how much profit a company makes on its invested capital.
• Profit per employee: This metric measures how much profit each employee generates for a company.
• Profit per customer: This metric measures how much profit each customer generates for a company.
• Profit per product: This metric measures how much profit each product generates for a company.

12 Profitability KPIs Gross profit margin: This measures how much profit a company is making on its products or services after subtracting the cost of goods sold. Operating profit margin: This measures how much profit a company is making after subtracting the cost of goods sold, operating expenses, and depreciation. Net profit margin: This measures how much profit a company is making after subtracting all expenses, including taxes. Return on assets (ROA): This measures how much profit a company is making on its assets. Return on equity (ROE): This measures how much profit a company is making on its equity. Earnings per share (EPS): This measures how much profit a company is making for each share of stock. Free cash flow: This measures the amount of cash that a company has available after subtracting all expenses, including taxes and capital expenditures. Asset turnover: This measures how efficiently a company is using its assets to generate sales. Inventory turnover: This measures how quickly a company is selling its inventory. Accounts receivable turnover: This measures how quickly a company is collecting its accounts receivable. Days sales outstanding (DSO): This measures the average number of days that it takes a company to collect its accounts receivable. Debt-to-equity ratio: This measures the amount of debt that a company has compared to its equity. Interest coverage ratio: This measures how easily a company can cover its interest payments.

The Financial Performance Ratios:

This category includes a variety of financial ratios that can be used to assess a company's financial performance. Some of the most common financial ratios include:

• Current ratio: This ratio measures a company's ability to meet its short-term obligations.
• Quick ratio: This ratio is similar to the current ratio, but it excludes inventory from the calculation.
• Debt-to-equity ratio: This ratio measures a company's leverage.
• Asset turnover ratio: This ratio measures how efficiently a company is using its assets to generate revenue.
• Profit margin: This metric is also included in the "Profitability KPIs" category.
• Return on assets (ROA): This metric is also included in the "Profitability KPIs" category.

The Financial Performance Ratios Financial performance ratios are used to compare a company's performance to its peers and to industry benchmarks. Some of the most common financial performance ratios include: Current ratio: This measures a company's ability to meet its short-term obligations. Quick ratio: This is a more stringent measure of a company's ability to meet its short-term obligations. Debt-to-equity ratio: This measures the amount of debt that a company has compared to its equity. Interest coverage ratio: This measures how easily a company can cover its interest payments. Return on assets (ROA): This measures how much profit a company is making on its assets. Return on equity (ROE): This measures how much profit a company is making on its equity.

The DuPont Analysis:

The DuPont analysis is a framework for analyzing a company's financial performance. It breaks down a company's ROE into three components: profitability, asset turnover, and financial leverage.

The DuPont Analysis is a framework for analyzing a company's financial performance. It breaks down ROA into three components:

• Profit margin:?This measures how much profit a company is making on each dollar of revenue.
• Asset turnover:?This measures how efficiently a company is using its assets to generate sales.
• Financial leverage:?This measures how much debt a company is using to finance its operations.

Project Profitability (NPV, IRR, PP, PI):

These four metrics are used to assess the profitability of a potential investment project.

• Net present value (NPV): This metric measures the difference between the present value of the project's future cash flows and its initial investment.
• Internal rate of return (IRR): This metric measures the rate of return that a project would need to generate in order to break even.
• Payback period (PP): This metric measures the number of years it takes for a project to generate enough cash flow to cover its initial investment.
• Profitability index (PI): This metric measures the ratio of the project's present value of future cash flows to its initial investment.

Project Profitability (NPV, IRR, PP, PI)

NPV, IRR, PP, and PI are all financial metrics that can be used to assess the profitability of a project.

• NPV:?This measures the net present value of all future cash flows associated with a project.
• IRR:?This measures the internal rate of return on a project.
• PP:?This measures the payback period on a project.
• PI:?This measures the profitability index of a project.

Gross Profit vs. Contribution Margin:

Gross profit and contribution margin are both important metrics for understanding a company's profitability. However, they measure different things. Gross profit is the difference between revenue and cost of goods sold (COGS). Contribution margin is the difference between revenue and variable costs.

Gross profit measures a company's profitability on a purely product-level basis. It does not take into account any fixed costs, such as marketing and administration expenses. Contribution margin measures a company's profitability on a more granular level. It takes into account variable costs, which are costs that vary directly with the amount of product sold.

EBITDA vs. EVA

EBITDA and EVA are both profitability metrics, but they measure different things. EBITDA stands for earnings before interest, taxes, depreciation, and amortization. EVA stands for economic value added.

EBITDA is a measure of a company's operating profitability. It is calculated by subtracting COGS, selling, general and administrative expenses (SG&A), depreciation, and amortization from revenue.

EVA is a measure of a company's true economic profit. It is calculated by subtracting the cost of capital from EBITDA. The cost of capital is the minimum rate of return that investors expect to earn on their investment in a company.

Cash Flow Ratios

Cash flow ratios measure a company's ability to generate and manage cash flow. Some of the most common cash flow ratios include:

• Current ratio:?The current ratio measures a company's ability to meet its short-term obligations. It is calculated by dividing current assets by current liabilities.
• Quick ratio:?The quick ratio is a more conservative measure of a company's ability to meet its short-term obligations. It is calculated by dividing quick assets by current liabilities.
• Cash conversion cycle:?The cash conversion cycle measures the time it takes for a company to convert its inventory into cash. It is calculated by adding the days of inventory on hand to the days of receivables outstanding and subtracting the days of payables outstanding.

EBITDA Ratios

EBITDA ratios measure a company's profitability and efficiency. Some of the most common EBITDA ratios include:

• EBITDA margin:?The EBITDA margin measures a company's profitability from operations. It is calculated by dividing EBITDA by revenue.
• EBITDA to interest expense ratio:?The EBITDA to interest expense ratio measures a company's ability to cover its interest expenses. It is calculated by dividing EBITDA by interest expense.
• EBITDA to debt ratio:?The EBITDA to debt ratio measures a company's ability to service its debt. It is calculated by dividing EBITDA by total debt.

Detailed and in-depth analysis of the four areas covered in the Performance Cheat Sheet:

Gross profit vs. contribution margin:

Gross profit and contribution margin are both important metrics for assessing a company's profitability. Gross profit measures how much profit a company makes on its products or services, while contribution margin measures how much profit a company makes on each unit sold.

Gross profit is calculated by subtracting COGS from revenue. COGS includes the direct costs associated with producing or delivering a company's products or services, such as the cost of raw materials, labor, and factory overhead.

Contribution margin is calculated by subtracting variable costs from revenue. Variable costs are costs that change in proportion to the number of units produced or sold, such as the cost of direct materials and direct labor.

Gross profit and contribution margin can be used to assess a company's profitability in different ways. Gross profit can be used to compare companies of different sizes and industries, while contribution margin can be used to identify areas where a company can improve its profitability by reducing its variable costs.

EBITDA vs. EVA:

EBITDA and EVA are both important metrics for assessing a company's profitability. EBITDA stands for earnings before interest, taxes, depreciation, and amortization. EVA stands for economic value added.

EBITDA is a measure of a company's operating profitability. It is calculated by subtracting COGS, selling, general, and administrative expenses (SG&A expenses), depreciation, and amortization from revenue.

EVA is a measure of a company's after-tax profitability. It is calculated by subtracting all of a company's costs, including the cost of capital, from its operating profits.

EBITDA is a useful metric for comparing companies of different sizes and industries, because it takes into account all of the costs associated with running a business, except for interest expense and taxes. EVA is a more comprehensive metric than EBITDA, because it takes into account the cost of capital.

Cash flow ratios:

Cash flow ratios measure a company's ability to generate and manage cash. Some common cash flow ratios include the current ratio, quick ratio, and cash flow from operations to sales ratio.

The current ratio is calculated by dividing current assets by current liabilities. Current assets are assets that can be converted into cash within one year, such as cash, accounts receivable, and inventory. Current liabilities are debts that must be paid within one year, such as accounts payable and accrued expenses.

The quick ratio is calculated by dividing quick assets by current liabilities. Quick assets are current assets minus inventory.

The cash flow from operations to sales ratio is calculated by dividing cash flow from operations by revenue. Cash flow from operations is the cash generated from a company's core business operations.

Cash flow ratios can be used to assess a company's liquidity, solvency, and efficiency. Liquidity measures a company's ability to meet its short-term obligations. Solvency measures a company's ability to meet its long-term obligations. Efficiency measures how well a company is managing its cash flow.

Here are some specific examples of how the performance cheat sheet can be used to gain a deeper understanding of business performance:

• A business owner can use the cheat sheet to track the company's revenue growth, profit margin, and customer satisfaction. This information can be used to identify areas where the company is doing well and areas where it needs to improve.
• An investor can use the cheat sheet to evaluate the financial performance of potential investments. For example, an investor could compare the EBITDA margins of different companies in the same industry to identify companies that are more efficient and profitable.
• A financial analyst can use the cheat sheet to assess the financial performance of businesses and industries. For example, a financial analyst could use the cheat sheet to compare the debt-to-equity ratios of different industries to identify industries that are more leveraged.
• A management team can use the cheat sheet to develop and implement strategies to improve the performance of their businesses. For example, a management team could use the cheat sheet to identify areas where the company's profitability is lagging and develop strategies to improve those areas.

Overall, the performance cheat sheet is a valuable resource for anyone interested in understanding and measuring business performance. By understanding and using the metrics in the cheat sheet, stakeholders can make better decisions about their businesses and investments.