Essential Financial Ratios:

Formula :

Turnover = Total billed                   
+ Unbilled services provided (in progress)           
- Billed services not provided (accrued income)

Why this calculation? The turnover must reflect the economic reality of the company, not just the administrative movements (this refers to the accrual accounting approach as opposed to cash-based accounting).

Formula :

Cost of Sales = Purchases of goods/raw materials                
              + Variation des stocks
              + Direct subcontracting                
              + Direct production labour

For service companies (without stock):

Cost of Services = Salaries of consultants/technicians assigned 
                 + Corresponding social charges                 
                 + Specialist subcontracting        
                 + Directly attributable mission expenses

Attention: Do not confuse with general expenses! A manager who oversees several projects falls under administrative costs, not the cost of sales; the same applies to your secretary, whose costs are generally found in administrative expenses.

Formula :

Gross Margin = Revenue - Cost of Sales

Key indicator: It is your ability to generate value from your core business. This margin will then be expressed as a percentage (see below) to capture its importance and its ability to cover the remaining expenses. This is an indicator that can also be analysed by project, clients, or type of services with appropriate management accounting.

Includes :

• Operating subsidies
• Gains on disposals
• Reversals of provisions

Key indicator: These products increase your operating profit. Their origin can be one-off (capital gains) or recurring (subsidies). It is important to identify them clearly to understand the true performance of your company's core activity.

As additional (optional) information, the concept of exceptional result differs according to accounting frameworks: it is presented separately in accounting under the Swiss Code of Obligations, whereas in financial statements prepared according to IFRS standards, this result is integrated and identified subsequently in the notes to the financial statements, particularly under Alternative Performance Measures. This remark is applicable to "exceptional" or non-recuring income and expenses.

The operating expenses encompass all the costs necessary for the day-to-day functioning of your business, excluding the direct costs included in the cost of sales.

Distribution Costs

• Commercial and marketing expenses
• Sales commissions
• Delivery and transport charges
• Sales team salaries

Administrative Charges

• Administration and management salaries
• Rents and service charges
• Insurance (local, business)
• Overheads (telephone, supplies, etc.)
• Accountancy and legal fees

Other Operating Expenses

• Depreciation allowances
• Provisions for risks
• Losses on disposals

Key indicator: These costs reflect your ability to manage your operating expenses effectively. A good control of these items is essential to achieve sustainable operational profitability.

💡 DHAC Advice: These costs tend to increase with the growth of business volume and inflation. Ensure rigorous monitoring, establish budgets, avoid unnecessary expenses, compare supplier offers, and negotiate favourable terms.

Formula :

EBIT = Marge Brute 
     + Autres Produits 
     - Coûts de Distribution 
     - Charges Administratives 
     - Autres Charges d'Exploitation

Key indicator: this is an intermediate total measuring a company's operating result before interest (and financial result) and the effect of taxes. It is a key indicator of operational performance, as it shows the ability of the core activity to generate profits independently of financing choices and taxation.

Why is EBIT important?

• It measures the pure profitability related to operations, without distortion from financial or tax charges.

• It facilitates comparisons between companies, regardless of their financing method.

• A positive EBIT means that the company generates sufficient value to cover its fixed costs, depreciation, and operating expenses.

Formula :

Financial Result = Financial Income - Financial Expenses

What do these terms mean?

• Financial products: income from financial investments, interest received, exchange gains, discounts obtained, capital gains on investment securities, reversals of financial provisions, transfers of financial charges.
• Financial charges: interest on loans, bank fees, exchange losses, depreciation allowances and financial provisions.

Why it matters: This ratio highlights how financial management affects profitability, showing whether financing costs are covered by financial income. A negative result indicates that expenses outweigh income — often a sign of heavy debt or high financing costs.
 

The financial result is added to operating profit to form current profit before tax, a key step in calculating the final net result.

Formula :

Result before Tax = EBIT + Financial Result

The result before tax, also known as the current result before tax (CRBT), is the total of operating and financial results before the deduction of corporation tax.

This indicator is essential as it measures the overall profitability of the company from its ongoing operations, taking into account both operational performance (EBIT) and financial management (financial result). A positive pre-tax result means that the company is generating a profit before paying its taxes, which is a good sign of financial health.

Why it matters for entrepreneurs: Tracking pre-tax profit helps anticipate your company’s ability to handle its tax burden and secure a sustainable net profit. It’s also a key indicator for investors and lenders assessing profitability before taxation.

Formula :

Corporation tax = ((Profit before tax +/- adjustments) x tax rate) +/- (change in deferred tax)

The accounting result before tax (Result before Tax) must be adjusted to determine the taxable base and thus determine the tax charge, main adjustments:

• Tax reintegrations: certain accounting charges are not tax-deductible (fines, penalties, certain provisions, etc.).
• Tax deductions: tax credits, accelerated depreciation, specific expenses incurred.
• Utilisation of carried forward losses: tax losses from previous years can be used to reduce the taxable base.

In IFRS standards:

• Deferred taxes are accounted for to reflect the temporary differences between accounting profit and taxable profit (deferred tax assets and liabilities).

• This adjusts the total amount of tax to be paid or reclaimed over time.

The sum of current taxes and deferred taxes constitutes the tax charge that will be deducted from the result before tax to obtain the final net result.

Formula :

Net Income = Profit before Tax - Corporation Tax

The net result represents the final profit or loss of your business after deducting all expenses, including taxes. It is the amount that you can either distribute to shareholders or reinvest in the business.

This indicator summarises the overall profitability of your company over the considered period. It is often used by investors, lenders, and executives to assess the actual financial performance.

Formula :

EBITDA = EBIT + Depreciation + Amortization

Why it matters: EBITDA shows the true operating performance of your business, stripping out the effects of financing (interest) and accounting choices (depreciation and amortization). It’s a widely used benchmark to compare profitability across companies and industries, independent of financing, tax, or depreciation policies.

Key takeaway: EBITDA plays a central role in business valuation, especially when calculating enterprise value with the EV/EBITDA multiple. It provides insight into a company’s ability to generate operating cash flows and is carefully examined by investors and acquirers. Yet, because it is often adjusted, it should be interpreted with caution.

Cash flow tracks the real movement of cash from the start to the end of a period, revealing how your business generates and uses its money.

The cash flow statement is structured into three key sections, each showing a major type of financial movement within your business:

Operating cash flow shows the cash generated by your company’s core business. It can be calculated in two ways:

• Direct method: the gap between money coming in and money going out from your core operations.
• Indirect method (more frequent): starting from net income, adjusted for non-cash expenses (like depreciation and provisions) and shifts in working capital. ​

This cash flow covers money coming in from sales and money going out for purchases, salaries, operating costs, taxes, and more. Unlike accounting profit, it excludes non-cash expenses like depreciation.

This is a crucial indicator: a positive operating cash flow shows that your business generates enough cash from its core activity to cover day-to-day needs and even fund future investments.

Investing cash flow groups together all cash movements linked to your company’s investments. It typically covers:

• Buying long-term assets — for example equipment, buildings, or machinery.
• Selling or disposing of these long-term assets.
• Buying or selling stakes in other companies or subsidiaries.

This flow reflects the company’s development, growth, or modernization strategy. A negative investing cash flow usually shows the business is investing in its future. A positive one, on the other hand, may suggest asset sales — whether to refocus activities or to generate cash.

In short, this indicator shows the real cash spent or received for long-term assets used in running your business.

Financing cash flow reflects the cash movements linked to how your business is financed. It includes:

• Money coming in from business loans or other borrowings.

• Capital increases through share issuance.

• Shareholder loans or partner contributions to the company’s current account.

• And other sources of external financing. This cash flow also includes cash outflows for debt repayments and dividend payments.

This cash flow reveals how a business funds its growth or repays external resources — beyond its day-to-day operations and investments.

The growth rate of turnover measures the evolution of revenue from one year to the next. It is an essential indicator of the performance and development dynamics of your business.

Formula: ((Revenue year N - Revenue year N-1) / Revenue year N-1) × 100

Interpretation :

• 20%: Strong growth (be mindful of control)
• 5-20%: Healthy growth
• < 5%: Low growth or stagnation

Additional considerations

• Organic growth vs external growth. The growth rate can come from two different sources: organic growth (resulting from the company's own activities, such as an increase in sales) or external growth (due to acquisitions or disposals of assets). It is important to separate these effects in order to properly analyse actual performance.
• Exchange rate effect: For companies operating internationally, fluctuations in exchange rates can impact revenue in local currency without any real change in economic activity. An adjustment is often necessary to analyse "real" growth.
• Decomposition of organic growth: volume effect and price effect
The organic evolution of revenue is generally explained by:
• • A volume effect, corresponding to the variation in quantities sold
  • A price effect, related to changes in the tariffs applied. These two components allow for a more refined analysis to better understand the source of growth.

Formula: ((Equity N - Equity N-1) / Equity N-1) × 100

Interpretation :

• Positive: Strengthening of equity
• Stable: Maintenance of the structure
• Negative: Erosion of capital, vigilance

To better understand the quality, nature, and sustainability of revenue growth, it is essential to compare it with other financial and operational indicators, including:

• Evolution of workforce growth: Comparing the growth of revenue to that of the workforce allows for the assessment of revenue generated per employee, which provides an indication of productivity and operational efficiency.
• Evolution of operating costs: Analyzing whether fixed and variable costs evolve proportionally to turnover allows us to assess whether growth is profitable or if it dilutes margins.
• Variation of gross margin and net margin: The simultaneous evolution of gross and net margins provides insight into the ability to control costs and generate profit despite growth.
• Customer retention rate and number of new customers: Sustainable growth often relies on a good balance between acquiring new customers and retaining existing ones.
• Sectoral or macroeconomic indicators: Comparing the growth rate of turnover to that of the market, competitors, or macroeconomic indicators allows for situating the company's performance within its context.
• Growth in terms of market share: Beyond gross revenue, it is important to measure the evolution of the company's market share. This not only demonstrates internal growth but also the ability to gain competitive position within its industry.

Formula: (Revenue - Cost of Goods Sold) / Revenue × 100

Interpretation :

• 60%: Excellent margin (services, tech)
• 30-60%: Good margin (depending on sector)
• < 20%: Low margin, be cautious of viability

The gross margin can vary significantly from one sector to another, and even within the different segments or services of the same company. For example, high value-added activities such as technology often display margins that are much higher than those of more capital-intensive industrial or agricultural sectors. It is therefore essential to compare the gross margin to sector benchmarks or, better still, internal benchmarks within the company in order to draw relevant insights.

Additional note: To better understand the actual profitability of different segments, products, or services, it is often necessary to implement analytical accounting. This allows for the precise allocation of costs and revenues to each activity, thereby providing a detailed view that is essential for strategic decision-making and performance optimisation.

Formula: EBITDA / Revenue × 100

Interpretation :

• 20%: Very efficient
• 10-20%: Acceptable performance
• < 10%: Performance to improve

Important: As with gross margin, EBITDA margin can vary significantly across different sectors due to differences in cost structure, operational profitability, and market conditions. For example, technology sectors and high-value-added services generally exhibit higher EBITDA margins than capital-intensive industrial or distribution sectors. It is therefore essential to compare these margins to relevant sector benchmarks for accurate analysis.

Formula: Net result / Equity × 100

The net result corresponds to the net accounting profit for the financial year, while the equity includes the share capital, reserves, and retained earnings.

Illustrative interpretation (see supplementary note below):

• 15%: Excellent profitability for shareholders
• 8-15%: Satisfactory profitability
• < 8% : Low profitability

A high ROE means that the company generates a good return on the funds invested by its shareholders. It is important to compare this ratio with those of other companies in the same sector for a relevant analysis.

Interpretation (supplement) : The ROE is a powerful indicator, but its interpretation depends on the context. A high profitability is generally desirable, but it is important to consider :

• The expected profitability according to the sector and the company's strategy, which varies depending on the level of maturity and the outlook.
• The level of risk taken: a high ROE can result from significant debt that amplifies results, but also increases financial risk.
• Investment alternatives: it is useful to compare the ROE with the returns of other investments or sectors to assess the actual performance.

For example, a ROE of 18% is generally excellent, but if it comes from excessive financial leverage, it can be risky. Conversely, a lower ROE in a very stable and low-risk sector could be satisfactory.

The ROA measures the effectiveness with which a company uses all of its assets to generate a net result.

Formula: Net result / Total assets × 100

The total assets correspond to all the goods and resources owned by the company, both in the short term (inventory, receivables, cash) and in the long term (fixed assets).

Interpretation :

• 10%: Very efficient use of assets
• 5-10%: Acceptable effectiveness
• < 5%: Underutilised assets

The ROA allows for the assessment of how well management is able to convert its assets into profits. A low ROA may indicate ineffective management, over-investment, or non-productive assets.

This group of indicators allows for the assessment of economic performance related to human resources, by measuring the company's ability to generate results based on its workforce and salary costs.

Full-time equivalent profitability (FTE): This measure assesses the average net result generated by each employee in full-time equivalent.

Formula: Net result / Number of full-time equivalents (FTE)

Interpretation: A high profitability per FTE indicates that each employee significantly contributes to the generation of profits. It is a key indicator of operational efficiency and human resource performance.

This indicator measures the company's ability to generate a net result proportional to the costs incurred for employee remuneration.

Formula: Net result / Labour costs x 100

Interpretation: A high percentage indicates good control of personnel costs relative to the profits generated. It helps to manage salary costs and compare performance between different teams or subsidiaries.

This ratio shows whether a company can cover its short-term debts with its short-term assets (receivables, inventory, cash). A value above 1 is usually a good sign, meaning the business has enough liquidity to meet its short-term commitments.

Formula: Current Assets / Short-Term Liabilities

Interpretation :

• > 1,5 : Strong ability to cover short-term debts (though holding too much idle cash may be inefficient)
• 1,2 à 1,5 : Satisfactory situation
• < 1,2 : Warning: if the ratio falls below 1, your short-term debts are no longer fully covered, creating a risk of cash flow issues — corrective action is needed.

This ratio is a crucial measure of short-term financial health. Creditors, investors, and business leaders often rely on it to evaluate a company’s ability to stay solvent in the near term.

This is a stricter version that excludes inventory from current assets, considering only receivables and cash. This ratio assesses the company’s immediate ability to pay its debts without relying on inventory sales.  

Formula: (Current Assets – Inventory) / Short-Term Liabilities

Interpretation :

• > 1 : Excellent immediate liquidity
• 0,8 à 1 : Acceptable situation
• < 0,8 : Warning about payment difficulties – risk if inventory cannot be quickly converted into cash.

This ratio is particularly useful for assessing very short-term solvency, especially in sectors where inventory may take longer to sell.

This is the strictest ratio, as it only takes into account cash and highly liquid assets to cover short-term debts. It reflects a company’s ability to meet its financial obligations immediately.

Formula: Cash and Cash Equivalents / Short-Term Liabilities

Interpretation :

• > 0,4 : Excellent cash availability
• 0,1 à 0,4 : Normal situation, but should be monitored
• < 0,1 : Cash under pressure — high risk of default, corrective action needed

This ratio is especially valuable for businesses that need to keep strong cash reserves, such as financial institutions, or for assessing immediate solvency in times of crisis.

The debt ratio is a key financial metric showing how much of a company’s resources come from debt versus equity. It’s widely used to assess reliance on creditors — and the level of financial risk that comes with it.

Formula: Total Debt / Equity × 100

where :

• Total debt covers all short-, medium-, and long-term obligations — such as bank loans, supplier debts, and shareholder current account balances.
• Equity includes the company’s own funds (share capital, reserves, retained earnings, etc.).

Interpretation :

• < 30% : Low debt, high borrowing capacity; beware of excessive self-financing, which may limit expansion capacity or tax optimization
• 30-60% : Moderate debt
• > 60% : High debt, caution required

Additional notes:

• There is also a debt-to-asset ratio, calculated as , which measures the share of assets financed by debt.
• A more precise financial debt ratio may focus only on financial liabilities (bank loans) for a more targeted analysis of leverage.
• Finally, other metrics such as repayment capacity, interest expenses covered by EBITDA, etc., are also essential for refining the analysis.

The financial autonomy ratio measures the share of equity in the overall financing of a company’s assets. It thus reflects the company’s financial independence from external resources (debt) and provides an essential indication of its financial strength.

Formula: Equity / Total Assets × 100

Interpretation :

• > 50% : Very strong financial independence
• 30-50% : Adequate autonomy
• < 30% : Dependence on external financing

Essential? This ratio is a key measure of financial strength and solvency.

• It shows the company’s ability to absorb losses and finance its investments.
• It is an important criterion for banks and investors when assessing risk and deciding on financing.
• A solid level of financial autonomy gives the company more room to maneuver and a better ability to withstand economic fluctuations.

The interest coverage ratio (or Times Interest Earned – TIE) measures a company’s ability to cover its interest expenses from its operating results (EBITDA or EBIT). It is a key indicator for assessing short- and medium-term financial solvency.

Formula: EBIT or EBITDA / Interest Expenses

Some calculations use EBIT (Operating Profit) instead of EBITDA, but the objective remains the same: to verify whether operating profit can cover financial interest expenses.

Interpretation :

• > 5 : Excellent ability to pay interest
• 2,5-5 : Satisfactory coverage
• < 2,5 : Risk of difficulties

A high ratio reassures creditors and investors about the company’s ability to manage its debt. A low ratio signals an increased risk of default or financial stress, particularly in the event of rising interest rates.

The average collection period measures the average number of days it takes a company to be paid by its clients after making a sale. It is a key indicator of receivables management and cash flow.

Formule : (Accounts Receivable / Revenue) × 360 days

Interpretation :

• < 30 jours : Excellent collection
• 30-60 jours : Acceptable delay
• > 90 jours : Collection problem – how will you finance the DSO?

Important to consider: This period can be strongly influenced by:

• Contractual terms and commercial agreements (e.g., negotiated payment deadlines).
• Geographic area and jurisdiction (payment practices vary by country).
• The DSO may be impacted by outliers — do you have a credit policy in place? Review client relationships and their financial strength.
• Specific commitments made by the company (e.g., discounts for early payments).

The inventory turnover ratio measures how often a company sells and renews its inventory over a given period, usually one year. It is a key indicator of inventory management and supply chain efficiency.

Formula: Cost of Goods Sold / Average Inventory

The average inventory is calculated as: (Opening Inventory + Closing Inventory) / 2

Interpretation :

• > 8 : Fast turnover, efficient management
• 4-8 : Normal turnover
• < 4 :Excessive inventory, tied-up capital

A rapid turnover reduces costs related to storage (deterioration, obsolescence, financial expenses) and improves cash flow.

The average payment period to suppliers measures the average number of days a company takes to settle its accounts payable — that is, the time between receiving goods or services and making the actual payment.

Formule : Accounts Payable / Purchases including VAT) × 360 days

Interpretation :

• > 60 days: Good use of supplier credit
• 30-60 jours : Standard delay
• < 30 jours : Fast payment, possible optimization

💡 DHAC Tip: A high DPO improves your cash flow, but beware of supplier relationships!

Impact of a DPO above 60 days (Swiss context): In Switzerland, no law sets a maximum legal payment term for commercial transactions, which leaves a degree of contractual freedom between partners. However:

• A supplier payment period that is too long can damage business relationships by giving the impression of delay or financial weakness, which may affect trust and future negotiations.
• Even if there is no direct legal penalty, late payment interest may be applied in the event of a non-agreed delay.
• An excessively high DPO risks harming the company’s reputation within its professional ecosystem, potentially limiting access to preferential terms or reliable supplies.
• Suppliers, particularly SMEs, may face cash flow difficulties if payment periods are excessive, which can lead to contractual tensions.

Are you discovering financial analysis and finding this page dense? That’s normal! Here is our DHAC method to progress step by step.

💡 Practical Tips to Start:

4-week plan: Gather your documents → Calculate your 5 survival ratios → Compare with industry thresholds → Identify 1–2 priority actions

⚠️ Mistakes to Avoid:

❌ Focusing on only one ratio ❌ Ignoring your industry ❌ Analyzing only one year ❌ Overlooking seasonality

🎯 To move faster, Contact DHAC

You can start on your own if:

• Your structure is simple (< 20 employees)
• You have basic accounting knowledge
• Your results are stable

Consult our experts if:

• Your growth is accelerating (> 30% annually)
• You want to optimize your financial structure
• Your ratios show repeated warning signs
• You are preparing a fundraising round or a loan

Focus on these vital indicators first:

1. Current ratio: Can you pay your debts? (> 1.2)
2. DSO (Days Sales Outstanding): Are your clients paying quickly? (< 60 days)
3. Gross margin: Are you creating value? (> 30% minimum)
4. Revenue growth: Is your activity progressing? (> 5% annually)
5. Operating cash flow: Is your activity generating liquidity?

🎯 Objective: Avoid immediate difficulties and understand your basic business model.

Add these ratios for regular monitoring:

• EBITDA margin: Pure operating profitability ​
• Debt ratio: Financial balance
• DPO (Days Payables Outstanding): Cash flow optimization
• ROE: Overall performance for shareholders

🎯 Objective: Create a monitoring rhythm and identify trends.

Master all the ratios presented on this page according to your industry needs.

🎯 Objective: Move from reactive control to proactive management. Anticipate difficulties, optimize performance, and make informed strategic decisions (investments, hiring, banking negotiations).

Comparing your financial ratios with those of your industry is essential for effectively analyzing your company’s performance. The same ratio can have very different meanings depending on the sector.For example, a net profit margin of 15% would be considered excellent in retail, but may be seen as weak in services, where margins are generally higher.

Key points:

• Industrial, commercial, and service sectors have different financial and operational profiles that influence ratios (profitability, asset turnover, debt ratios, etc.).
• For relevant analysis, it is recommended to have benchmarking data specific to Switzerland and adapted to the targeted business segment.
• Comparisons should always be made over several years to observe trends and avoid hasty conclusions caused by temporary fluctuations.

Analyze trends over 3–5 years rather than absolute values. Consistent improvement is more valuable than an isolated excellent ratio.

Never focus on just one indicator. Financial health is measured by the balance between liquidity, profitability, and solvency.

Each weak ratio should trigger reflection on corrective actions and follow-up.

To grant an unsecured loan, banks generally examine:

• Company existence: at least 24 to 36 months proven for an unsecured loan.
• Repayment capacity: analysis of cash flows and future profitability to ensure solvency.
• Current and potential debt: existing debt levels and borrowing margin.
• Alternative guarantees: personal guarantees, insurance, or other indirect guarantees.
• Payment history: no payment incidents, good financial behavior in credit records.
• 3-year evolution: trends in results and capacity to cover interest expenses are scrutinized to assess stability and sustainability.

These criteria combine quantitative and qualitative analysis to limit default risk.