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O P I N I O N
Share value
F or those of you involved with firm financial management, you expect to regularly review the balance sheet and income statement and maybe a cash flow statement. While these documents provide vital information necessary to make good business decisions, I should tell you that they may not go far enough. Attention to performance metrics can enhance business value, so you might try using a few new financial ratios in your spreadsheets.
Tracey Eaves GUEST SPEAKER
In the business of valuing privately-held A/E/P and environmental consulting firms, we analyze these statements for the story they tell. However, it’s only part of the story. We also conduct an in-depth ratio analysis for a deeper look into the financial drivers of the firm. As a principal, you should be doing the same on a regular basis to gain a better understanding of how just a few internal operational tweaks can lead to vastly improved performance and increased share value. Following are a few key ratios that should be calculated and presented with your firm’s regular financial statements and the median values from Zweig Group’s 2017 Financial Performance Survey . ❚ ❚ Current ratio (current assets/current liabilities). The current ratio measures the ability of the firm to meet its short-term obligations. The greater the cur- rent ratio, the more solid financial position the firm
has in terms of its liquidity. A ratio of 2.0 means that a firm has twice as many assets convertible to cash as it does liabilities. The 2017 median current ratio from Zweig Group’s survey is 2.13. “Firm owners need every tool possible to win. If you’re not already doing so, I encourage you to present some new material at the next board meeting. It’s as close as your Excel spreadsheet.” ❚ ❚ Quick ratio ((current assets – work in process)/ current liabilities). This is another look at liquidity, although from a more immediate point of view by
See TRACEY EAVES, page 12
THE ZWEIG LETTER March 5, 2018, ISSUE 1238
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