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FINANCIAL RATIOS FOR INFORMATION TECHNOLOGY FIRMS

PERSONNEL RATIOS REVENUE RATIOS OPERATING EXPENSE RATIOS


■ Sales Per Employee = ■ Existing Clients Revenue Ratio = ■ R&D Ratio =
Adjusted Net Revenue Revenue from Existing Clients Research and Development Costs
Equivalent Full-Time Employees Adjusted Net Revenue Adjusted Net Revenue

■ Personnel Cost Ratio = ■ New Clients Revenue Ratio = ■ Sales Expense Ratio =
Personnel Costs Revenue from New Clients Sales Expenses
Adjusted Net Revenue Adjusted Net Revenue Adjusted Net Revenue

■ Personnel Productivity Ratio = ■ Maintenance Revenue Ratio = ■ Marketing Expense Ratio =


Adjusted Net Revenue Maintenance Revenue Marketing Expenses
Personnel Costs Adjusted Net Revenue Adjusted Net Revenue
■ Software Revenue Ratio =
■ Discretionary Payroll Ratio = ■ Administrative Employee Cost Ratio =
Software Revenue
Incentive-Based Personnel Costs Administrative Personnel Costs
Adjusted Net Revenue
Personnel Costs Exclusive of Total Personnel Costs
Incentive-Based Compensation
■ Large Clients Dependency Ratio =
Revenue from Large Clients ■ Monthly Sustenance Ratio =
■ Employee Billable Hours Ratio = Adjusted Net Revenue Monthly Sustenance Level (MSL)
Hours Billed Monthly Adjusted Net Revenue
Hours Worked ■ Service Revenue Ratio =
Service Revenue ■ Client Acquisition Costs Ratio =
■ Employee Overhead Cost Ratio = Adjusted Net Revenue Marketing Expenses For New Clients
Administrative Personnel Costs Gross Profit
Personnel Costs ■ Hardware Revenue Ratio =
Net Hardware Sales
■ Employee Utilization Rate = Adjusted Net Revenue
Hours Billed 45 Bridge Street – P.O. Box 4519
Available Hours ■ Third-Party Revenue Ratio = Metuchen, NJ 08840-4519
Adjusted Net Revenue from T (732) 321-1099 | F (732) 321-1066
the Sale of Third-Party Solutions www.chalfin.com
Adjusted Net Revenue
CASH FLOW METRICS PROFITABILITY RATIOS WORKING CAPTIAL RATIOS
■ Fast MSL Coverage = ■ Return on Total Assets = ■ Current Ratio =
Cash Net Profit after Taxes Current Assets
Monthly Sustenance Level Total Assets Current Liabilities

■ MSL Coverage = ■ Return on Equity = ■ Quick Ratio =


Cash + Accounts Receivable Net Profit after Taxes Current Assets - Inventory
to be Collected in 30 Days Total Equity Current Liabilities
Monthly Sustenance Level
■ Return on Sales =
■ Prepaid Cash = Net Profit after Taxes
Cash - Client Deposits (Prepayments) Sales

■ Prepaid Liquidity =
Cash + Accounts Receivable -
Client Deposits (Prepayments)
The Chalfin Group Inc. provides:
■ Advisory Services Relating to the
Financial ratios are frequently utilized to evaluate
business performance. This guide uses the following definitions: Purchase and Sale of Businesses
■ Adjusted Net Revenue =
■ Strategic Planning - Restructuring
Sales of software and services plus net hardware sales ■ Valuation Services
■ Net Hardware Sales =
Gross margin from hardware sales
■ Monthly Sustenance Level (MSL) =
Payroll, taxes, insurance, rent, utilities, telephone,
debt service, and other fixed expenses
■ Personnel Costs = 45 Bridge Street – P.O. Box 4519
Payroll, payroll taxes, health insurance, and Metuchen, NJ 08840-4519
direct employee costs T (732) 321-1099 | F (732) 321-1066
www.chalfin.com
This publication is distributed with the understanding that no legal, accounting, or other professional advice
is being rendered. No liability whatsoever is assumed in connection with its use. © 2009 The Chalfin Group Inc.