For those involved with firm financial management, you expect to regularly review the balance sheet and income statement and maybe a cash flow statement. While these documents provide vital information necessary to make good business decisions, they may not go far enough.

In the business of valuing privately held A/E/P and environmental consulting firms, we analyze these statements for the story they tell. However, it's only part of the story. We also conduct an in-depth ratio analysis for a deeper look into the financial drivers of the firm. As a principal, you should be doing the same on a regular basis to gain a better understanding how just a few internal operational tweaks can lead to vastly improved performance and increased share value.

Following are a few key ratios that should be calculated and presented with your firm's regular financial statements; median values from ZweigWhite's 2012 Financial Performance Survey are provided for comparison.

Firm owners need every tool possible to win

Current Ratio (current assets/current liabilities) – The current ratio measures the ability of the firm to meet its short-term obligations. The greater the current ratio, the more solid financial position the firm has in terms of its liquidity. A ratio of 2.0 means that a firm has twice as many assets convertible to cash as it does liabilities. The overall 2012 median current ratio from ZweigWhite's survey is 2.26.

Quick Ratio ((current assets - work in process)/current liabilities) – This is another look at liquidity, although from a more immediate point of view by removing work in process. The 2012 median quick ratio from ZweigWhite's survey is 2.04.

Chargeability ((direct labor hours/total labor hours) x 100) – Chargeability is a measure of the percentage of total raw staff labor hours charged to projects, calculating the firm's labor expenses that are billable. This is a good measure of efficiency and effectiveness. The 2012 ratio from ZweigWhite's survey is at a 10-year low of 52.8 percent.

Break-even Multiplier ((total payroll + total general & administrative overhead +1)/direct labor) – This multiplier calculates the amount a firm must generate per dollar of direct labor to cover its overhead costs and direct labor. The 2012 median multiplier from ZweigWhite's survey is at an eight-year high of 2.79.

Break-even Analysis (total fixed costs/gross margin) – This is a simple way to understand the minimum level of sales needed just to make it to zero net income at the end of a year. For example, if your annual fixed costs are $1 million and gross margin is 35 percent, your firm will need to achieve total revenue of approximately $2.86 million. This is one of my favorite planning tools; it's simple, yet powerful.

Average Collection Period (accounts receivable/(gross revenue/365 days))
– This ratio measures the efficiency of accounts receivable collection.
The overall 2012 median ratio from ZweigWhite's survey is 77 days.

These ratios are but a few that can be calculated from your existing financial statements. In fact, there are nearly 100 indicators included in the 2012 survey. Firm owners need every tool possible to win. If you're not already doing so, I encourage you to present some new material at the next board meeting. It is as close as your Excel spreadsheet.

To purchase the Zweigwhite 2012 Financial Performace Survey, visit www.zweigwhite.com/p-1071-financial-performance-survey-2012.aspx

Tracey D. Jeffers, MBA, CBA, CMEA, is the principal of Valuation Consulting for ZweigWhite. She has spent more than a decade valuing closely held companies. Contact her at tjeffers@zweigwhite.com or 479-582-5700.