Business calculators

Most of what shows up here answers one of two questions. Either it is a ratio pulled from a set of accounts — a way of turning a balance sheet or an income statement into a figure that means something on its own, comparable across companies and across years — or it is a piece of unit economics, working out what a single customer, sale or employee actually costs and is worth. Both are the same underlying habit: taking raw figures that are hard to interpret in isolation and converting them into something with a known, well-understood benchmark to be read against.

Liquidity, leverage and efficiency are three different questions

The ratio calculators in this section split into three families that get confused with each other more than they should. Liquidity ratios — current ratio, quick ratio, working capital — ask whether a business can meet what falls due in the next twelve months. Leverage ratios — debt to equity, interest coverage — ask how much of the business is funded by borrowing and how comfortably it can service that debt. Efficiency ratios — inventory turnover, receivable and payable turnover, the cash conversion cycle, asset turnover — ask how hard the money tied up in the business is actually working. A company can look perfectly healthy on one family and be in real trouble on another: strong liquidity with poor efficiency is common in businesses sitting on slow-moving stock, and strong efficiency with weak liquidity is common in fast-growing ones that have outrun their working capital.

The cash conversion cycle ties the balance sheet to actual cash

Profit and cash are not the same thing, and nowhere is that clearer than in the gap between buying stock and being paid for it. The cash conversion cycle — days inventory outstanding plus days sales outstanding, minus days payable outstanding — counts exactly how many days that gap runs for, and every one of those days has to be funded from somewhere: a bank facility, an overdraft, or the owners' own cash. A retailer that collects at the till and pays suppliers on 60-day terms can run a negative cycle, meaning customers are effectively financing the business; a manufacturer holding raw materials, work in progress and finished stock before a customer pays on 45-day terms can easily run past 90 days, which is why manufacturing businesses need proportionally more working capital to grow than service businesses do.

Break-even, contribution and margin all come from the same split

Contribution margin, the two break-even calculators and the operating margin calculator all rest on one distinction: separating fixed costs, which do not move with volume, from variable costs, which do. Get that split wrong — treating salaried staff as a variable cost, say, when they are paid regardless of order volume — and the break-even figure that comes out the other end will be wrong in a way that is easy to miss because the arithmetic itself is still correct. Once the split is right, the contribution margin ratio turns a fixed cost base directly into a sales target, and the margin of safety shows how far revenue could fall before that target stops being met.

Unit economics: what a customer costs and what a customer is worth

Customer acquisition cost and customer lifetime value are usually looked at separately and mean very little on their own — a CAC of £500 is either excellent or fatal depending entirely on what the customer goes on to be worth. Put together as the LTV to CAC ratio, they answer the question that actually matters for a growing business: is each new customer worth acquiring at the price being paid for them. The employee turnover and retention calculators apply the same logic to staff rather than customers, since replacing an employee carries its own recruitment, onboarding and lost-productivity cost that is easy to underestimate when it is spread across a year rather than counted per departure.