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The Road Map Cause-and-Effect Relationships Leading to Financial Distress High A/R LOW CASH High Current Liabilities Too Much Customer Credit Too Much Inventory Not Enough Inventory High Borrowing Not Enough Customer Credit Low A/R Poor Inventory Control No Cash Discounts on Payables High Interest Low Productivity Shrinkage Bookkeeping Errors LOW GROSS MARGIN Low Sales High Liabilities Low Retained Earnings Poor Buying High Hidden Costs Poor Pricing Poor Expense Control LOW NET PROFITS Profit Mastery profitmastery.net 800.488.3520 [email protected] © 2015 Business Resource Services The Scorecard How to use the Road Map Cascade Office Systems Scorecard • • • • The Road Map is a visual diagnostic tool designed to help identify key causal factors of financial underperformance. If your company has symptoms of Low (or declining) Cash, Low (or declining) Gross Margin, and/or Low (or declining) Net Profit, then begin the analysis process in one of those three shaded boxes. • Move upwards out of the shaded box, against the direction of the arrow, toward an unshaded box. • As you travel against the arrow, say to yourself, “…is caused by…” or “…can be caused by….” • For instance, moving from “Low Gross Margin” to “No Cash Discounts,” you would say, “Low or Declining Gross Margin is/can be caused by not taking Cash Discounts.” • Then, ask yourself if that’s an issue relevant to your company. What can be done to reduce or eliminate that causal factor? Perform a similar brainstorming exercise for each potential cause of your particular symptom(s). Develop specific goals and action plans to treat every causal factor you identify. Treating the identified potential causes of the symptom will lead to improved financial performance. Two Yrs. Ago One Yr. Ago BALANCE BALANCESHEET SHEETRATIOS: RATIOS: Stability Stability(or (or“Staying “StayingPower”) Power”) 1. Current 2. Quick 3. Debt-to-Worth Current Assets Current Liabilities Cash + Accts. Rec. Current Liabilities Total Liabilities Net Worth INCOME INCOMESTATEMENT STATEMENTRATIOS: RATIOS:Profitability Profitability(or (or“Earning “EarningPower”) Power”) 4. Gross Margin 5. Net Margin Gross Profit Sales Net Profit Before Tax Sales ASSET MANAGEMENT RATIOS: Overall Efficiency Ratios ASSET MANAGEMENT RATIOS: Overall Efficiency Ratios 6. Sales-to-Assets Sales Total Assets 7. Return on Assets Net Profit Before Tax Total Assets 8. Return on Investment Net Profit Before Tax Net Worth ASSET ASSETMANAGEMENT MANAGEMENTRATIOS: RATIOS:Working WorkingCapital CapitalCycle CycleRatios Ratios 9. Inventory Turnover Cost of Goods Sold Inventory 10. Inventory Turn-Days 360 Inventory Turnover 11. Accounts Receivable Turnover Sales Accounts Receivable 270,000 12. Accounts Receivable 360 Turn-Days Accts. Rec. Turnover 13. Accounts Payable Turnover Cost of Goods Sold Accounts Payable 14. Average Payment Period 360 Accts. Pay. Turnover Most Recent Year Trend Industry Composite Calculations, Trends, or Observations
