Financial Ratio Analysis
Financial ratios are used by all successful businesses throughout the world to analyze financial performance, solvency, and efficiency. The ratios are calculated using common financial numbers found in your company’s financial reports.
These ratios are only as good as the information is in Total Office Manager. If your company has bookkeeping errors or you do not exercise proper accrual accounting techniques, this information will be WRONG.
Total Office Manager’s ratio analyses is NOT a substitute for professional qualified analysis of your company. If you are unsure of what these values mean or you have reason to think they are not accurate, seek immediate advice form a qualified professional.
From the main menu, click Tools | Financial Ratios.
The Raw Numbers Section of the Financial Ratio Analysis Window
In Total Office Manager® , the raw numbers used in financial ratio analysis all originate from either the Income Statement or the Balance Sheet, with one exception.
The “Inventory” amount displayed in the Financial Ratio Analysis tool reports the accumulated total for all COA accounts which meet both of the following criteria:
- The account type must be either “Other Asset” or “Other Current Asset” and,
- The “This Account Is Used For Inventory Purposes Only” checkbox must also be ticked.
- As Of – The ending date used to calculate the ratio. We do not include a date range as this is not possible. This is due to the fact that many of the accounts we use are a running total – they start at the beginning of time.
- Refresh – Refreshed information on this form. Used when you believe changes have been made in Total Office Manager that could change these values.
- Print – This button provides additional information including the base numbers used to calculate the ratios.
The display of the four main types of ratios (Profit, Solvency, Efficiency, and Labor) has the same layout.
- Metric – The Metric column displays the name of the ratio.
- Value – The Value column displays the result of the ratio analysis formula.
- Description – The Description column typically provides information regarding what the particular ratio is designed to indicate, what certain values mean, and the actual formula used to calculate the value.
Z Score View
The Z Score view reports Altman’s Z-Score analysis. See “Related Topics” below, for more information on the Z-Score Bankruptcy Model.
- Open your chart of accounts list and please be sure that your inventory account (chart of accounts) has the “This Account is Used for Inventory Purposes Only” check box checked. This tells Total Office Manager that the account should be used for inventory related ratios.
- When you labor related Cost of Goods Sold accounts and Labor Related Expense accounts, you should also check to make sure the “Used for Payroll and Labor Only check box is checked. This tells Total Office Manager that the account should be used for labor related ratios.
- The ratios use various account types. The As of Date considers the account type. Balance Sheet type of accounts use a “running total” up to the As of Date. Income Statement type of accounts use a date range up to the As of Date. Total Office Manager considers your company’s definition of a “Year” in the Company Info form. This is where you tell Total Office Manager if you use a regular calendar year of a special year.