In this episode, we discuss the most essential operating performance metrics for a business, with a emphasis on how to discern the performance of an organization’s core operations, how changes in fixed expenses will alter profits, and whether financial reporting fraud may be present. Key points are:
Sales to operating income ratio; does not include gains, losses, financing, or changes in reserves.
Core operating earnings; adjusts net income to focus on how the core business is doing.
Operating leverage ratio; good for fixed expense analyses.