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Chapter Summary

Section 35.1: Ratio Analysis: Liquidity, Solvency, Profitability, Efficiency​

  • Liquidity ratios: Current ratio, quick ratio (ability to pay short-term obligations)
  • Solvency ratios: Debt-to-equity, debt ratio (financial leverage and risk)
  • Profitability ratios: Gross profit margin, net profit margin, ROA, ROE (profitability measures)
  • Efficiency ratios: Inventory turnover, receivable turnover, payable turnover (asset efficiency)

Section 35.2: Luxembourg Industry Benchmarks​

  • Benchmark sources: STATEC, Chamber of Commerce, professional associations
  • Benchmark comparison: Compare ratios to industry averages
  • Sector-specific benchmarks: Different benchmarks for retail, hospitality, services
  • Benchmark limitations: Averages may not reflect specific situation
  • Best use: Guide for comparison, consider context

Section 35.3: Cash Flow Analysis​

  • Statement of cash flows: Operating, investing, financing activities
  • Operating cash flow: Most important, should be positive
  • Cash flow ratios: Operating cash flow ratio, cash flow margin
  • Cash flow patterns: Healthy vs. problem patterns
  • Cash flow forecasting: Plan cash needs and financing

Section 35.4: Break-Even Analysis​

  • Break-even point: Sales volume to cover all costs
  • Formula: Fixed costs ÷ (Selling price - Variable cost)
  • Uses: Pricing decisions, cost management, sales planning
  • Margin of safety: How much sales can decline before losses
  • Important for risk assessment and planning

Section 35.5: Budget vs. Actual Analysis​

  • Variance analysis: Compare actual to budget
  • Revenue variances: Analyze revenue differences
  • Expense variances: Analyze expense differences
  • Variance investigation: Investigate significant variances
  • Budget revisions: Revise when conditions change

Section 35.6: Key Performance Indicators (KPIs) for SMEs​

  • KPI categories: Financial, operational, customer KPIs
  • KPI selection: Align with objectives, measurable, actionable
  • Common KPIs: Revenue growth, profit margin, CAC, CLV
  • KPI tracking: Track at appropriate frequency
  • KPI dashboards: Visual display of key metrics

Section 35.7: Using Financial Analysis for Decision Making​

  • Decision types: Investment, operational, strategic decisions
  • Analysis methods: Investment analysis, pricing analysis, cost-benefit analysis
  • Decision framework: Define, analyze, evaluate, decide, monitor
  • Risk consideration: Assess risks in decisions
  • Common decisions: Pricing, expansion, cost reduction

Key Takeaways​

  1. Ratio Analysis: Provides insights into liquidity, solvency, profitability, efficiency
  2. Benchmarks: Compare performance to industry standards
  3. Cash Flow: Critical for business survival, analyze regularly
  4. Break-Even: Understand minimum sales needed, plan accordingly
  5. Budget Analysis: Compare actual to budget, identify variances, take action
  6. KPIs: Track key metrics that matter for business success
  7. Decision Making: Use financial analysis to support informed decisions

End of Chapter 35 Summary