Financial Planning Template III

This template allows you to determine whether your company can meet its obligations, whether it is generating profits sustainably, and whether it uses its resources efficiently.

Financial ratios are key indicators that translate the accounting data from your Balance Sheet and Income Statement into useful information for decision-making. Through them, you can answer questions such as:

• Do I have enough liquidity to cover my short-term debts?
• Am I making good use of the resources provided by investor agents?
• Is my profitability growing or stagnating month by month?

Use this tool to evaluate your company’s performance over different periods, compare results, and define improvement strategies. It is especially useful for preparing internal reports, presentations to investor agents, or searching for financing.

Sections of the template explained in detail

The Financial Planning Template III is structured around three major analytical blocks: liquidity, solvency, and profitability. Each group contains the most representative ratios for understanding your company’s financial situation and its evolution throughout the year.

1. Liquidity Ratios

They assess the company’s ability to meet its short-term obligations.

• Cash Ratio: measures whether the company can pay its immediate debts with available cash (cash on hand, bank balances, and highly liquid investments). A value equal to or greater than 1 indicates sufficient liquidity.
• Current Ratio: broadens the previous view by including receivables (customers and debtors). If the ratio is above 1, it means that current assets cover short-term liabilities; if it is below 1, there may be a risk of cash-flow pressure.
• Acid Test (Quick Ratio): analyses liquidity without considering inventories, which are the least liquid current assets. A value around 1 indicates balance, while values below 1 show dependence on stock sales to meet payments.
• Working Capital: represents the excess of current assets over current liabilities. Positive working capital reflects a balanced financial structure, where permanent resources (equity and long-term debt) cover short-term financing needs.

2. Solvency Ratios

They indicate the company’s ability to meet all its obligations, both short-term and long-term.

• Solvency Ratio: shows the company’s overall capacity to meet all its obligations. The higher the ratio, the greater the safety margin against defaults or unforeseen losses. A value above 1.5 is generally considered adequate.
• Total Debt Ratio: indicates what portion of the assets is financed with debt. A moderate value reflects a balance between external and internal financing; a high value (>0.7) implies greater financial risk and reliance on credit.
• Debt Quality Ratio: measures the share of short-term debt relative to total debt. The lower the value, the more stable the financial structure, as most indebtedness is long-term.
• Financial Leverage: expresses how many times equity finances the company’s assets. High leverage increases the return on equity (ROE), but it also raises risk in the event of declining results.
• Financial Debt Ratio: relates total financial debt to equity, showing the level of interest-bearing debt (bank or market). Ratios below 1 indicate a conservative financial profile.
• Debt Service Coverage Ratio (DSCR): evaluates the company’s ability to meet its debt service (interest and principal repayments) using its operating cash flow (EBITDA). A value above 1 means that generated cash flows comfortably cover financial commitments.
• Cost of Debt: reflects the effective average interest rate the company pays on its indebtedness. It allows comparison of the financial cost with the return obtained (ROA or ROI).
• Financial Expenses: record the interest paid on debt during the fiscal year. An increase without a proportional rise in profitability may indicate excessive leverage.

3. Profitability Ratios

They measure the efficiency in the use of resources and the company’s ability to generate profits.

• ROE (Return on Equity): shows the profitability obtained by the shareholders. It is key to assessing whether the profit compensates the investment made.
• ROI (Return on Investment or Return on Sales): reflects the profit generated in relation to the investment or to sales, showing the efficiency of the business.
• ROA (Return on Assets): measures the company’s ability to generate profits from its assets. A high value indicates efficient use of resources.
• Return on Total Capital: combines the information from ROE and ROA to provide a comprehensive view of the business’s overall profitability.

4. Working Capital Management Ratios

• NOF: represent the capital required to finance the operating cycle (inventories, customers, and trade creditors). A positive value implies resources tied up in day-to-day activity; a negative value indicates that the company is partially financed by its suppliers.
• Working Capital – NOF: measures structural cash or liquidity surplus. If positive, the company has stable resources available; if negative, it needs external financing to operate normally.
• Days Sales Outstanding: an estimated monthly value expressing the average number of days the company takes to collect payments from customers. Long collection periods may increase the risk of bad debt and reduce liquidity.
• Days Payable Outstanding: measures the average number of days the company takes to pay its suppliers. The longer the period, the better the cash position, although it may affect commercial relationships.
• Customer/Supplier Financing: compares customer balances with supplier balances. A value above 1 means the company is financing its customers; a value below 1 indicates that it is being financed by its suppliers.
• Inventory Days: determines the average number of days inventory remains in stock before being sold. The lower the value, the more efficient the stock management.

5. Efficiency or Turnover Ratios

• Fixed Asset Turnover (ANC): measures how many times fixed assets generate revenue during the year. A high value indicates efficient use of long-term investments.
• Current Asset Turnover (AC): shows the speed at which current assets are converted into sales. High turnover implies good management of collections and inventories.
• Inventory Turnover: calculates how many times per year the inventory is renewed. A high turnover reflects strong commercial performance and an optimal level of stock.

How to use it

1. Gather the data: before using the template, make sure you have completed the templates Financial Planning I (Income Statement) and Financial Planning II (Balance Sheet). The ratios are calculated based on the data from these two templates.
2. Load the data into the tool: enter the data corresponding to the Financial Planning I and II templates into this new tool. The template will automatically calculate the ratios month by month and show you their annual evolution.
3. Interpret the results: based on the recommendations provided.
4. Make informed decisions: for example:
   1. If liquidity is low, consider improving collection management or renegotiating payment terms with suppliers.
   2. If profitability decreases, analyse your margins and cost structure.
   3. If solvency deteriorates, review the level of indebtedness and consider strengthening equity.

The Financial Planning III – Financial Ratios template completes the analysis started with the previous tools in the Financial Planning Kit (the Income Statement and the Balance Sheet), providing you with a comprehensive view of your company’s financial position and evolution.

Thanks to these indicators, you will be able to assess the real financial health of your business, anticipate potential cash-flow tensions, and demonstrate to investors or financial institutions the solidity and sustainability of your project.

Download and start using this template to measure, analyse, and improve your company’s economic performance with professional criteria.

You can also explore the other tools available in the “Tools and templates” section of the Plataforma ONE to complete your financial planning.