Catalog

	Table of Contents
p. 176 of 203 BACK | NEXT Foreword 1. Introduction to the Guidelines 2. User Instructions 3. Preparing and Appraising Investment Project 4. Financial Management of Executing Agencies 5. Reporting and Auditing 6. Financial Institutions 7. Knowledge Management 7.1. Useful Websites 7.2. Operations Manual (OM) 7.3. Project Administration Instructions (PAIs) 7.4. International Standards 7.5. International Accounting and Auditing Architecture 7.6. Financial Review Checklist for RRPs 7.7. Appraisal Checklist: Nonrevenue-Earning Project 7.8. Appraisal Checklist: Revenue-Earning Project 7.9. Appraisal Checklist: Private Sector Project 7.10. Appraisal Checklist: Financial Institution 7.11. Undertaking Sensitivity and Risk Analyses 7.12. Model Operating Covenants 7.13. Model Capital Structure Covenants 7.14. Model Liquidity Covenants 7.15. Commonly Used Ratios 7.15.1. Operating Indicators 7.15.2. Capital Adequacy Indicators 7.15.3. Liquidity Indicators 7.16. Model Financial Statements: Service Organization 7.17. Model Financial Statements: Manufacturing Organization 7.18. Model Terms of Reference for an Auditor 7.19. Audit Report Questionnaire Addendum

Financial Management and Analysis of Projects : 7. Knowledge Management

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7.15. Commonly Used Ratios

7.15.1. Few of these ratios are appropriate for financial Institutions (FIs). Appropriate indicators for assessing FI performance are described in section 6.4.

7.15.1. Operating Indicators

Ratios or Other Measures	Computation Method	Significance and Notes
1. Rate of Return on Net Fixed Assets in Service (%)	Net Operating Income (a) x 100 Average of Net Fixed Assets in Service (b)	Measures the productivity (yield) of Net (Depreciated) Fixed Assets in use. (a) Excluding government grants and subsidies (b) These fixed assets may, or may not, be subject to revaluations. See section 3.6.2.2 for a legal description and section 4.4.6.2 for a discussion of applicability.
2. Self-Financing Ratio (%)	Cash from Internal Sources Average Annual Capital Expenditures*	Also called Cash Generation Capability and Contribution to Expansion. Measures the percentage of annual capital investments financed from available cash resources. * Average Annual capital expenditures may be derived from an average of multiple years (e.g. one past, the present year and one future year). See section 3.6.2.3 for a legal description and section 4.4.6.3 for a discussion of applicability.
3. Operating Ratio (%)	Total Operating Expenses (including Depreciation and Taxes x 100) Total Operating Revenues	Measures the coverage of operating expenses by operating revenues. See section 3.6.2.5 for a legal description and section 4.4.6.4 for a discussion of applicability.
4. Number of times interest earned (before income taxes	Operating Income (before interest on long-term debt) Annual Interest Expense on Long-term Debt	Measures the coverage of interest charges particularly on long-term debt before taxes.
5. Total Fixed Charge Coverage	Operating income, Interest, Lease Payments (before taxes and charges) Annual Interest, Lease Charges and Other Fixed Charges	Similar to interest coverage ratio except that it is expanded to cover leases and other fixed charges.
6. Return on Total Assets	Net Income + Interest Expense Average Investment in Assets	Measures the productivity of assets
7. Return on Common Stockholder Equity	Net Income - Preference Dividends Average Common Stockholders' Equity	Indicates the earning power on common stockholders equity.
8. Return on Capital Employed	Net Income after Taxes + Tax-adjusted Interest Equity + Long-Term Debt	A measure of the efficient deployment of capital by the company.
9. Percentage Growth in Revenues	Current Period Revenues - Previous Period Revenues x 100 Previous Period Revenues	Measures the increase in revenues between two periods.
10. Percentage of Revenues used to meet Operating (manufacturing) Expenses	Cost of Goods Sold x 100 Revenues	Measures the gross margin for any period.
11. Gross Profit Margin	Revenues - Cost of Goods Sold Revenues	Measures gross profit before inclusion of selling, warehousing, management and administration costs.
12. Non-operating (manufacturing) Cost compared to Sales	Selling, Warehousing, Management and Administration costs x 100 Revenues	Overhead expense element of Revenues.
13. Profit element of Revenues	Net Profit Total Revenues	Measures the profit element of sales.
14. Fixed Assets Turnover Ratio	Revenues Net Fixed Assets	Measures the number of times fixed assets are turned over.
15. Inventory Turnover	Cost of Goods Sold in Period Average Inventory for Period	Measures the rate of movement in total inventory, that is, the number of times the inventory is turned over.
16. Revenues to Total Assets	Revenues Total Assets	Measures efficiency of use of assets in generating sales.
17. Return on Equity	Net Profit Equity	Measures the rate of return on the investment in the business.

Back 7.14.3. Dividend Limitation	Next 7.15.1. Operating Indicators