This return on net assets (return on capital) is represented as follows: EBIT/net operating assets = return on net assets (EBIT: earnings before interest and taxes) This is arguably the most useful ratio for measuring management effectiveness. The ratio brings into consideration both the P&L of the business (which provides the EBIT) and the balance

management-influenced waste.

This question highlights the only two uses for cash flow: 1. Cash is used to invest in growth, or 2. Cash is used to fund

you have set aside money to pay your taxes and assuming that you have nothing drawn on your line of credit. In our opinion, any company that can meet this criterion is considered fully capitalized and can start harvesting profits for either further growth opportunities or distribution to shareholders for wealth diversification. If business owners

Meeting your core capital target means having two months of operating expenses in cash, after

If you do not pay any taxes, you either have not created any wealth or you have cheated, and both scenarios are bad.

we recommend getting profitable with the work you have, proving you can get to 15% profitability (based on our adjusted Simple Numbers), adding labor to knock profit back to 10%, and then growing to 15% again. Lather, rinse, and repeat.

Here’s what Crabtree’s CPA firm finds: • At 5% pretax profit, your business is on life support. • At 10% pretax profit, the business is doing well but has some untapped potential. • At 15% pretax profit, the business is in great shape. • Anything above 15% indicates that you should earn it while you can.

And note: The focus is more on gross margin dollars than gross margin as a percentage.