1. WHY INTERPRETE FINANCIAL DATA?
It helps to know your markets, measure growth, and make authoritative decisives.
2. WHAT ARE COMMON BENCHMARKS?
Sales revenues, profits, number of stores, and customers.
3. HOW DO YOU EVALUATE PERFORMANCE?
COST-BENEFIT ANALYSIS
WHAT IS IT? You weigh the expected costs of launching or running a business against the expected benefits. The costs involved are variable (diretly involved with the new activity) and fixed (these remain more or less the same, regardless of the new business).
RETURN ON INVESTMENT
WHAT IS IT? A method used to measure the benefits of the project over the length of time of a project (when this is time specific).
You divide the net profit expected for the first year by the amount of expenditure and express it as a percentage of the outlay.
BREAKEVEN ANALYSIS
WHAT IS IT? It provides a way of finding out how many sales are necessary to recoup the capital spent on the original investment. You need to know your contribution margin (the percentage of each sales dollar left over after variable costs are taken aways from overall profits).
TIME VALUE OF MONEY
WHAT IS IT? It describes the concept that a dollar received today is worth more than a dollar received at some point in the future because the dollar received today can be invested to earn interest. The harsh reality is that future benefits may be worth less dollar for dollar than if the capital outlay was put in an investment fund.
4. WHAT ARE THE WAYS TO VALUE A COMPANY?
HARD NUMBERS. These are based on existing figures and include equity book value (assets minus liabilities) and fair market value (the value established between a willing buyer and a willing seller).
SOFT NUMBERS. These are based on estimates of future benefits and therefore contain an element of subjectivity.
INTANGIBLE ASSETS. These include people, knowledge, relationships, intellectual property, brand names, loyal customer base, copyrights or trademarks, mailing lists, long-term contracts, and franchises.
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