Key Financial Performance

Indicators
Financial Management
 Key Financial Performance Indicators

Key Financial ratios or indicators are the most common form of financial
analysis.
These are the result of establishing the numerical relationship between two
quantities.

Analysis by ratios or indicators points out the strengths and weaknesses of a

business and indicates probabilities and trends.

The financial relationships expressed do not have an individual meaning,

therefore favorable or unfavorable situations cannot be established. it is
necessary to have reference points.

Mental standards
Company reasons from previous years
Projected reasons
Industry average
 Key Financial Performance Indicators

Liquidity Indebtedness Cost effectiveness Leverage Operation

Payment period to suppliers (Accounts payable / Cost of sales) * 365
Current Ratio Debt level Gross profit Liabilities / equity Accounts receivable rotation Net sales / accounts receivable
Working capital Current Liabilities / Operational utility Collection Period (Accounts receivable / net sales) * 365
Acid test Total Liabilities Net profit Inventory turnover (Inventories / cost of sales) * 365
ROA Operational Cycle Collection Period+Inventory turnover
ROE
EBITDA
 Key Financial Performance Indicators

Liquidity

These establish the ability of a company to cancel its short-term obligations.

These establish the ability of a company to pay its current liabilities by

converting its current assets to cash.

What could happen to the company when it has to pay all its obligations
immediately in the next 12 months
 Liquidity Indicators
The current ratio, also known as the working capital ratio, measures the capability
of a business to meet its short-term obligations that are due within a year.

The ratio considers the weight of total current assets versus total current liabilities.
It indicates the financial health of a company and how it can maximize the liquidity
of its current assets to settle debt and payables.

Current ratio = Current assets / Current liabilities

2.092,4/ 999,6 = 2,09

For each peso that the company must pay in the short term, it has $2.09 to support
the obligation.

Companies with an indicator greater than 1 have the ability to pay,

With an indicator less than 1, the company has liquidity risk

Marketer 1,36 Industrial 1,85 Services 1,92

 Indicadores de Liquidez

Working capital or Net Working Capital (NWC)

Is the difference between a company's current assets and its current liabilities,

NWC is a measure of a company’s liquidity, operational efficiency, and short-

term financial health. If a company has substantial positive NWC, then it
should have the potential to invest and grow. If a company’s current assets do
not exceed its current liabilities, then it may have trouble growing or paying
back creditors. (liquidity risk).

Work capital = Current assets / Current liabilities

$2.092,4 – $999,6 = $1.092,8

 Indebtedness Indicators

The indebtedness indicators are intended to measure to what degree and in

which way the creditors participate in the financing of the company.

The risk run by the creditors, the owners of the company and the
convenience or inconvenience of a certain level of indebtedness for the
company is measured.

A high level of indebtedness is desirable only when the rate of return on the
company's total assets is higher than the average cost of capital.
 Indebtedness Indicators

1-LEVEL OF DEBT
It is the degree of leverage used and indicates the participation of third parties on
the company's assets.
Total Liabilities / Total Assets 51.8% Less than 60%

For every peso that the company has invested in assets, 51.8 cents have been
financed by third parties

2- FINANCIAL DEBT
Financial Obligations / Net Sales 35%
Obligations with financial entities are equivalent to 35% of sales. Less than 40%

3- IMPACT OF THE FINANCIAL DEBT

Financial Expenses / Net Sales 2.1%
Financial expenses represent 2.1% of sales for the year. Less than 10%
 Leverage Indicators

This indicator makes a comparison between the financing of third parties with the
resources of the partner shareholders, in order to establish which of the two parties
is at greater risk.

TOTAL LEVERAGE
Total Liabilities / Equity 1.22
For each peso of equity there are debts of 1.22
Each weight of the partners is committed by 122%

SHORT TERM LEVERAGE

Current Liabilities / Equity 0.53
For each peso of equity there are debts of 53 cents
Each peso of the partners is committed in the short term by 53%

TOTAL FINANCIAL LEVERAGE

Total Liabilities with Financial Institutions / Equity 0.32
For each peso of patrimony there are debts with the banks for 32 centv.
Each peso of the partners is committed to the banks by 32%
 Profitability Indicators

Profitability indicators are used to measure the effectiveness of the company's

administration to control costs and expenses.

For an investor they are the most important indicators to analyze the way in
which the return of the values ​invested in the company occurs.
 Indicadores de Rentabilidad

GROSS PROFITABILITY
The gross profit margin reflects the ability of the company to generate profits before
administrative and sales expenses, other income and expenses and taxes. When
compared with financial standards of your activity, it may reflect excessive
purchases or labor costs.

Gross Profit / Net Sales 27.4%

For each peso sold, $ 27,4 cents of profit was generated

OPERATIONAL PROFITABILITY
It reflects the profitability of the company in the development of its corporate
purpose, indicating whether or not the business is profitable regardless of income
and expenses generated by activities not directly related to it.

Operating Income / Net Sales 20.5%

For each peso sold, $20.5 cents of Operating Income was generated
 Indicadores de Rentabilidad

NET PROFITABILITY
It is the profitability after tax of all the activities of the company, regardless of
whether they correspond to the development of its corporate purpose.

Net Profit / Net Sales 14.7%

Each peso sold generated 14.7 cents of net profit

RETURN ON EQUITY (ROE)

It shows the profitability of the investment of the partners or shareholders.
Net Income / Equity 14.9%
Business owners realized a return on their investment of 14.9%

RETURN OF TOTAL ASSETS (ROA)

Shows the asset's ability to generate profits.
Net Income / Total Assets 5.4%
Each peso invested in the asset generated 5.4 cents of net profit.
 EBITDA

E Earnings

B Before

I Interest

T Taxes

D Depreciation

A Amortization
 EBITDA

EBITDA, or earnings before interest, taxes, depreciation, and

amortization, is a measure of a company's overall financial
performance and is used as an alternative to net income in some
circumstances. .

This metric also excludes expenses associated with debt by adding

interest expense and income taxes. However, it is a more accurate
measure of corporate performance, since it is able to show earnings
before the influence of accounting and financial deductions.
 EBITDA

EBITDA

Operating Income + Depreciation + Amortization

Earnings, taxes, and interest figures are found in the income statement, while
depreciation and amortization figures are typically found in the notes to operating
income or the cash flow statement. The usual shortcut to calculating EBITDA is to
start with operating profit, also called earnings before interest and taxes (EBIT),
and then add depreciation and amortization back in.

Earnings, taxes, and interest figures are found in the income statement, while
depreciation and amortization figures are typically found in the notes to operating
income or the cash flow statement. The usual shortcut to calculating EBITDA is to
start with operating profit, also called earnings before interest and taxes (EBIT),
and then add depreciation and amortization back in..000.000

Utilidad Antes de Impuestos = 10.000.000 = 16.000.000

 Activity Indicators

Turnover of Accounts Receivable

It establishes the number of times that accounts receivable rotate in the

course of a year and shows the behavior of a company's portfolio.

Net Sales / Accounts Receivable Customers

Payment Period to Suppliers

Establish the number of days used by the company to pay suppliers

(Accounts Payable to Suppliers / Cost of Sales) * 365

 Activity Indicators

COLLECTION PERIOD
Establish the number of days used by the company to collect its accounts receivable

(Accounts Receivable Customers / Net Sales) * 365

INVENTORY ROTATION
Establishes the number of days for the company to convert its inventories into
accounts receivable or cash.

(Inventories / Cost of Sales) * 365

OPERATIONAL CYCLE
Establish the number of days the company requires to convert its inventories into
cash. It is the sum of the number of days required to rotate the inventory and the
collection period.

((Inventories / Cost of Sales) * 365) + ((Accounts Receivable from Customers / Net

Sales) * 365))
 Financial Markets

In the economy there are Lenders or investors – and Borrowers

A lender is an individual, a public or private group, or a financial institution

that makes funds available to a person or business with the expectation
that the funds will be repaid.

- Repayment will include the payment of some interest

A borrower is an individual or entity that is using money, assets, or

services on credit. The concept most commonly applies to the lending of
funds, where a borrower applies for a loan, and there is a credit evaluation
by the lender.

- The borrower agrees to certain repayment terms and conditions as part

of the loan agreement.
 Financial Markets

Financial Intermediation

Financial intermediation is usually understood as a process of connecting

lenders and borrowers, performed by banks and other intermediaries .

It is core essence of all financial systems, which are extremely important for
capitalist economies.

It allows banks to make profits and is one of the sources of economies’ well-
functioning.

Why is financial intermediation so important?

Because It brings together economic agents with surplus who want to

lend money and those with insufficient funds who need to borrow