Business measures explained in plain English

Sales

What comes in, and how fast it is growing.

Sales: All the money coming into your business from selling stuff. This is your top line: before you pay for anything.
Sales Growth: How much more (or less) money you're making this month compared to last month. Positive means growing, negative means shrinking.
Sales per Employee: How much sales each person in your business generates on average. Higher means your team is more productive.
Sales per Unit: Average selling price per unit sold. Shows how much you charge for each item.
Last Twelve Months (LTM): The total of the most recent 12 months of a metric, rolling forward each month. Smooths out seasonal ups and downs to show true annual performance.
Monthly Trend: How much a number changed from last month to this month. Helps you spot problems or wins quickly.
Rolling 3 Month Trend: Shows if your 3-month average is improving or declining. Compares overlapping periods that shift by one month to smooth out volatility.
Rolling 12 Month Trend: Shows your long-term annual direction. Compares overlapping 12-month periods that shift by one month to reveal real growth patterns beyond seasonal swings.
Growth Rate Hierarchy: The ideal order: Cash flow grows faster than profit, profit grows faster than sales, sales grows faster than assets. This means you're getting more efficient as you grow.
Weighted Average: An average where each period counts as much as the weight you give it. Every period starts with an equal weight; give a period more weight to let it count for more, for example when the latest year is the best guide to the future.

Profit and margins

What is left after the costs of delivering, running and funding the business.

Cost of Sales: What it costs you to directly deliver what you sell: materials, direct labour, subcontractors, shipping. Doesn't include overhead like rent or admin salaries.
COS per $100 Sales: If you grow sales by $100, how much goes to directly delivering that sale? Service businesses might be $20, product businesses might be $60.
Gross Profit: What's left after you pay for the stuff you sold: materials, labour to make it, etc. This money has to cover all your other expenses.
Gross Profit %: After paying for what you sold (materials, labour to make it), what percentage of your sales is left over? Same as Gross Margin. Higher is better: this has to cover your expenses and profit.
Gross Margin per $100 Sales: If you grow sales by $100, how much is left after paying to make what you sold? This has to cover rent, salaries, and profit.
Gross Profit per Sales Dollar: For every dollar you make in sales, how much is left after paying to make the product? Higher means better margins.
Gross Profit per Unit: How much gross profit you make on each unit sold, after paying for materials and direct costs. Shows your margin per item.
Gross Profit per Employee: How much gross profit each person in your business generates on average. Shows if your team is productive.
Gross Profit per Payroll Dollar: For every dollar you spend on wages, how much gross profit comes back? $3 means every wage dollar generates $3 in gross profit.
Operating Expenses: All the costs of running the business that aren't directly making the product: rent, office salaries, marketing, insurance, admin stuff.
Operating Expenses per $100 Sales: If you grow sales by $100, how much do your overhead costs (rent, admin, marketing) go up? Lower is better: means you have operating leverage.
Marketing & Sales Expenses: All costs related to attracting and converting customers: advertising, promotions, sales salaries and commissions, trade shows, website costs. Tracked as a percentage of sales to measure efficiency.
General & Admin Expenses: Overhead costs that aren't directly tied to production or sales: rent, utilities, office supplies, insurance, legal/accounting fees, bank charges, and administrative salaries. Should be controlled as a percentage of sales.
Operating Profit: What you make from actually running the business, before depreciation and amortisation, loan interest and tax. The same as EBITDA. Shows if your business model works.
Operating Margin: After paying for what you sold AND all overhead, what percentage of sales is left? Same as Operating Profit Margin.
Operating Profit per $100 Sales: If you grow sales by $100, how much operating profit do you make after everything? This is what's left before loan interest and taxes.
Operating Profit per Sales Dollar: After paying for what you sold AND all your overhead (rent, salaries, etc.), how much profit per sales dollar? Can be negative if you're losing money.
Operating Profit per Unit: How much operating profit you make on each unit sold, after paying for all costs and expenses. Shows your profit margin per item.
Operating Profit per Employee: How much operating profit each employee generates after all business expenses. Negative means they're costing more than they're bringing in.
Operating Profit per Payroll Dollar: After all expenses, how much operating profit for every wage dollar spent? Tells you if your team costs are too high.
Operating Profit per Gross Profit Dollar: For every dollar of gross profit, how much operating profit is left after overhead? Shows how efficiently you're managing expenses.
Operating Profit Growth: How much faster (or slower) your profit is growing compared to last period. You want this growing faster than sales: it means you're getting more efficient.
EBITDA: The same as Operating Profit: what the business makes before depreciation and amortisation, interest and tax. Often used to value a business.
Interest Expense per $100 Sales: If you grow sales by $100, how much goes to paying interest on loans? High numbers mean debt is eating your growth.
Tax per $100 Sales: If you grow sales by $100, roughly how much will you pay in tax? Based on your operating profit and typical tax rates.
Net Profit: The actual money left over after paying for absolutely everything: making products, overhead, loan interest, taxes. This is yours to keep.
Net Profit %: After paying ALL your bills, what percentage of your sales becomes actual profit? Same as Net Margin. This is what you really keep.
LTM Net Margin: Net profit as a percentage of sales over the last 12 months. Smooths out monthly noise to show your true annual profitability. Negative means you're losing money overall.
Cash Break-even Sales: The sales you need in a month to cover cost of sales and the operating expenses you pay in cash. Depreciation and amortisation are not counted, because no cash leaves the business for them. Below this number, trading uses cash. At this number the accounts still show a loss the size of the depreciation.
Cash Break-even Sales (LTM): The yearly sales needed to cover cost of sales and the operating expenses paid in cash, using the last twelve months. Depreciation and amortisation are not counted. Smooths out seasonal months.
Common Size Analysis: Showing each line item as a percentage of a total instead of dollar amounts. For P&L it's percentage of sales, for Balance Sheet it's percentage of total assets. Makes it easy to compare businesses of different sizes or track trends over time.
People Assets: Your team: measured by number of employees and how much you invest in their wages. Your people are assets too.
FTE: Full-Time Equivalent: counts all your workers as full-time. Two half-time workers = 1 FTE. Makes it easy to compare team sizes.

Cash flow

Where the money actually went, and how long it lasts.

Cash Balance: The actual amount of cash you have in the bank at the end of the period. This is the reality check: regardless of profit or sales, this is what you can actually spend.
Cash and Cash Equivalents: Money you can use right now: bank balances, petty cash, short-term deposits you can access immediately. The most liquid asset you have.
Cash Beginning: The amount of cash you had in the bank at the start of the period. Where you started before any activity happened.
Cash Reserve: Your cash balance as a percentage of your Last Twelve Months sales. This is a liquidity measure (not profitability): shows how many months of sales you have sitting in the bank as a safety cushion. Can be positive even when burning cash.
Cash Runway: How many months you can operate before running out of cash. The monthly version uses the average burn over the last three months, so one unusual month does not swing it; it is blank until three months are held. The LTM version uses the average monthly burn over the last 12 months and is blank until twelve are held. Reads 0 when the cash has already run out. Only relevant when burning cash. Shows "Cash Positive" when generating cash.
LTM Cash Runway: Months of cash remaining based on the average monthly burn rate from the last 12 months (not just the latest month). More stable than monthly runway because it smooths seasonal cash flow swings.
Net Burn Rate: How much cash you consume each month after accounting for sales coming in. Negative means you're losing cash, positive means you're generating it.
Net Cash Flow: The total change in your cash for the period across all activities: operations, investing, and financing. This is the bottom line.
Operating Cash Flow (OCF): The actual cash coming in from running your business: not including buying equipment or getting loans. Real money in the bank.
OCF Margin: Operating cash flow as a percentage of sales. Shows how much of every sales dollar actually becomes cash in the bank. Short for Operating Cash Flow Margin.
Operating Cash Flow per Sales Dollar: How much actual cash you collect for every dollar of sales. Important because you pay bills with cash, not sales on paper.
Operating Cash Flow per Employee: How much real cash each employee brings in. Different from profit because it accounts for customers who haven't paid yet.
Operating Cash Flow per Payroll Dollar: Real cash generated per wage dollar spent. Shows if your labour is actually bringing cash into the business.
OCF per Operating Profit Dollar: For every dollar of operating profit, how much actual operating cash flow do you generate? Shows if profits are turning into real cash.
Operating Cash Flow Growth: How much faster (or slower) your actual cash generation is growing. In a healthy business, this should grow faster than profit.
Cash Conversion: What percentage of your sales actually becomes operating cash flow. Higher is better: it means you're converting sales into real cash efficiently.
Free Cash Flow: The actual cash available to the business after paying for operating expenses AND capital investments (equipment, property, etc.). This is the cash truly available for growth, debt repayment, or distributions.
Free Cash Flow per Employee: How much free cash each employee generates after all business expenses and equipment purchases. Shows true cash productivity of your team.
Free Cash Flow per Operating Profit Dollar: For every dollar of operating profit, how much actual free cash do you get? Less than $1 means cash is trapped in the business.
Free Cash Flow per Payroll Dollar: For every dollar spent on wages, how much free cash comes back? Shows if payroll spending generates real cash after all expenses.
Cash Received from Customers: Actual cash that came in from customers this period, not just sales on paper. Adjusted for customers who still owe you money.
Cash Paid to Suppliers: Actual cash you paid to suppliers for inventory and materials. Adjusted for what you bought on credit and changes in inventory levels.
Cash Paid for Operating Expenses: Actual cash spent on running the business: rent, salaries, marketing, utilities. The real money out the door for overhead.
Cash Paid for Interest: Actual cash paid to lenders for interest on loans and debts this period. Real money paid, not just interest expense on the books.
Cash Flows from Operating Activities: Total cash generated or used by your day-to-day business operations. Shows if your business generates real cash from what it does.
Cash Flows from Investing Activities: Cash used to buy equipment or property, or cash received from selling these assets. Shows how much you're investing in the business.
Cash Flows from Financing Activities: Cash from borrowing money or owner investments, minus loan repayments and owner withdrawals. Shows how you're funding the business.
Purchase/Sale of Fixed Assets: Cash spent buying equipment, property, or vehicles (negative), or cash received from selling these assets (positive). Also called Capital Expenditures.
Net Change in Debt: How much your total borrowing increased or decreased. Positive means you borrowed more, negative means you paid down loans.
Net Change in Equity: How much owner investment changed: new money put in minus distributions taken out. Excludes profits (those are already in operations).
Direct Method (Cash Flow): Shows actual cash receipts and payments: cash from customers, cash to suppliers, etc. More intuitive than the indirect method which starts with profit and adjusts.

Working capital

The cash tied up in what customers owe, what you hold and what you owe suppliers.

Working Capital: Everything you own that turns into cash within a year (cash itself, money customers owe you, inventory) less everything you owe within a year. Positive working capital means the next year's bills are covered by what is coming in.
Operating Working Capital: The cash tied up in day-to-day operations. Money sitting in inventory and customer IOUs, minus what suppliers are lending you. Does NOT include cash in the bank.
Operating Working Capital per $100: If you want to grow sales by $100, how much cash do you need upfront? Covers inventory and customer credit, minus what suppliers lend you. Uses Last Twelve Months sales as the base.
Receivable Days: Average number of days it takes to collect customer payments. Lower is better: it means you're getting paid faster and have more cash available.
Inventory Days: Average number of days inventory sits before being sold. Lower is better: it means you're converting inventory to sales faster and tying up less cash.
Payable Days: Average number of days you take to pay suppliers. Higher is better: it means you're keeping cash longer before paying suppliers, improving cash flow.
Cash Conversion Cycle: How many days from when you pay suppliers to when customers pay you. Lower is better: it means cash comes back faster. Combine Receivable Days + Inventory Days − Payable Days.
Accounts Receivable per $100 Sales: If you grow sales by $100, how much extra is tied up in customer IOUs waiting to be paid? Slow payers need more working capital.
Inventory per $100 Sales: If you grow sales by $100, how much extra inventory do you need to buy? More inventory ties up cash you could use elsewhere.
Accounts Payable per $100 Sales: If you grow sales by $100, how much extra do suppliers let you owe them? This is free financing: higher is actually better.
Current Assets: Things you own that will turn into cash within a year: the cash itself, money customers owe you, inventory you'll sell.
Current Liabilities: Bills and debts you need to pay within the next year. Got to pay these from your current assets or cash coming in.

Balance sheet and returns

What the business owns and owes, how safe it is, and what the assets earn.

Total Assets: Everything you own that has value: cash, equipment, property, inventory, money people owe you. All of it.
Non-Current Assets: Things you own that will last more than a year and aren't easily turned into cash: buildings, equipment, vehicles, long-term investments. Also called Fixed Assets.
Plant & Equipment: Physical things your business owns that last more than a year: machinery, vehicles, computers, furniture, tools, and any land or buildings it owns. Also called PP&E (Property, Plant & Equipment) or fixed assets.
Total Liabilities: Everything you owe: credit cards, loans, bills, the lot. This has to be managed or it'll sink you.
Long-Term Liabilities: Debts and obligations you don't have to pay back for more than a year: mortgages, term loans, equipment financing. Different from current liabilities which are due soon.
Total Equity: What the business is actually worth to you after paying all debts. Your ownership stake plus all the profit you've kept in the business.
Current Ratio: Can you pay your bills due in the next year? If this is above 1, you have enough.
Quick Ratio: Can you pay your bills if you had to right now? This is stricter than Current Ratio: it only counts cash and money owed to you, not inventory.
Debt to Equity Ratio: How much you owe compared to what you actually own. Banks watch this closely: lower is safer, higher means more reliance on borrowed money. Under 1.0 means more equity than debt.
Liabilities to Assets: How much of your assets are financed by what you owe (short term and long term) versus owned outright. Above 1.00 means you owe more than you own. Lower is safer.
Equity Multiplier: How many dollars of assets you have for every dollar of equity. Higher means more leverage (more debt funding assets). Can boost returns but increases risk.
Interest Coverage Ratio: Can you pay interest on your debt from your profits? Measures how many times over you can cover interest payments, from profit after depreciation, as lenders measure it. Above 3x is healthy, 1.5-3x needs watching, below 1.5x means trouble: you're struggling to service debt.
Cash Flow to Liabilities: How much operating cash you generate compared to everything you owe, short term and long term. Higher is safer: it means what you owe can be serviced from operations.
Operating Cash Flow Ratio: Can you pay your current bills from operating cash flow? Above 1.0 means yes: you're generating enough cash from operations to cover what's due.
Return on Assets (ROA): For every dollar invested in your business, how many cents of profit are you making? Shows how well you're using what you own.
Return on Equity (ROE): Return to business owners on their investment. Shows how many cents of profit you generate for each dollar of owner equity. Higher ROE means better returns to owners.
Return on Capital: How much operating profit you generate for every dollar invested in your business operations. Combines profitability (Operating Profit %) with efficiency (Sales to Asset Ratio). Higher means you're generating more return from your capital.
Assets to Sales: For every dollar invested in your business, how much sales are you generating? Higher means your assets are working harder.
Sales to Asset Ratio: How much sales you generate for every dollar of operating capital invested. Higher means you're using your assets more efficiently to drive sales.
Assets to Operating Profit: For every dollar you have tied up in your business, how much profit are you making from operations? Tells you if your investments are working hard enough.
Assets to Net Profit: For every dollar you have invested in your business (equipment, inventory, etc.), how much profit are you making? Higher is better.
Assets to Operating Cash: For every dollar you have invested in your business, how much actual cash is flowing in? Shows if your stuff is generating real money.
Assets Growth: How much more (or less) stuff your business needs to operate. You want this growing slower than sales: it means you're getting more efficient with your assets.
Net Operating Assets: Total capital employed in business operations: combines Working Capital (short-term needs) plus Other Capital (long-term investments). This is what you're trying to generate returns on.
Other Capital: Long-term assets invested in the business beyond working capital: property, equipment, vehicles, and other fixed assets. These are the big investments that support your operations.
Altman Z-Score: A bankruptcy prediction formula developed by Edward Altman. Combines five ratios to predict financial distress. Above 2.9 = Safe Zone, 1.23-2.9 = Grey Zone (monitor closely), Below 1.23 = Distress Zone (high bankruptcy risk within 2 years).

Funding growth

How much of each extra $100 of sales the business can keep, pay out or borrow against.

Retained Profit per $100 Sales: If you grow sales by $100, how much profit stays in the business after interest, tax, and dividends? This builds your equity.
Dividends per $100 Sales: If you grow sales by $100, how much gets paid out to owners as dividends? Less dividends means more stays in the business.
Borrowing Capacity per $100 Sales: If you grow sales by $100 and keep the profit, how much more can you borrow? Retained profit builds equity, which lets you borrow more.

Buying or selling a business

The terms that come up when a business changes hands.

Enterprise Value: What someone pays for the business as a going concern, over and above its physical assets: the "goodwill". In Buy and Sell it is your EBITDA times the EBITDA multiple, plus any strategic value the accounts do not show.
EBITDA Multiple: The number you multiply your EBITDA by to value what the business earns. Growth, steady earnings and a business that runs without the owner all push the multiple up. A seller wants it higher and a buyer lower. A business with little or no profit gets little from it, and is valued on its strategic value and its assets instead.
Strategic Value: What a buyer will pay for things the accounts do not show, such as technology, customers, a brand, or what the buyer can do with the business. It is why a startup with little profit can still sell for millions. In Buy and Sell you type it in dollars and it is added to the goodwill.
Asset Sale: You sell the individual pieces of the business: goodwill, equipment, inventory. The buyer gets tax benefits and doesn't inherit your company's liabilities.
Share Sale: You sell ownership in the company itself. The buyer takes everything: assets, liabilities, contracts, history. Less common because buyers prefer the tax benefits and liability protection of asset sales.
Balancing Adjustment: Tax term for selling equipment. If you sell for more than the written-down value in your books, the difference is taxed as income. Reverses the depreciation deductions you claimed.
Transaction Costs: All the extra costs of buying or selling a business beyond the purchase price: legal fees, accounting fees, broker commissions, due diligence, stamp duty. Usually 5-10% of the sale price.
Broker Commission: Fee paid to the business broker who helped sell your business. Usually 5-10% of the sale price for small businesses, less for larger deals. Paid by the seller from the sale proceeds.
Bank Financing: Money borrowed from a bank to buy a business. Banks typically lend 50-70% of the purchase price at commercial interest rates over 5-10 years. Requires business assets as security.
Seller Financing: When the seller lends you part of the purchase price instead of you paying it all upfront. Shows the seller has confidence in the business and makes deals easier. Usually 10-30% over 3-5 years.
LVR (Loan to Value Ratio): How much the bank will lend you as a percentage of what you're buying. 50% LVR means the bank lends half, you put in half. Lower LVR means safer for the bank but more cash needed from you.
Debt Service: The total amount you have to pay each year on a loan: includes both the interest and paying back the principal. This comes out of your cash flow before you can take any profit.
Equity Required: The cash you need to put in from your own pocket to buy the business. What's left after bank loans and seller financing. Usually 20-40% of the purchase price plus transaction costs.
Capital Gains Tax (CGT): Tax you pay when you sell a business asset for more than you paid for it. The "gain" is the profit on the sale. Many jurisdictions offer a preferential rate or discount for long-held assets. Concessions may be available: talk to your accountant.
Company Tax Rate: The percentage of profit your company pays in tax. Rates vary by country and business size: check with your accountant for the rate that applies to your business.
Financial Year: Your business's 12-month accounting period. Common examples: Jul 1 to Jun 30 (Australia), Apr 1 to Mar 31 (UK/India), Jan 1 to Dec 31 (US/EU). Determines when you file taxes.
Calendar Year: The standard January 1 to December 31 year. Some businesses use this as their financial year instead of July-June. Makes it easier to compare with economic data and other businesses.

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Every business measure, in plain English.