In lieu of ratios specific to independent auto repair shops, the key ratios for small businesses are presented in its place. These are liquidity ratios, profitability ratios, cash flow ratios, and collection ratios.
Liquidity ratios are relevant when the small business is seeking financing as they help the lender to understand the speed with which a small business owner can turn their most liquid assets to cash. The three liquidity ratios are current, quick, and debt-service ratio.
Profitability ratios are used to determine the sustainability of the business and as a gauge for investors considering investing into the business. The three types of profitability ratios are Operating Profit Margin, net profit margin, and return on assets.
Cash flow ratios determine how much cash is generated from sales, how much cash is available for reserve or investment, and how much has to be paid to debtors. The types of cash flow ratios are operating cash flow to sales ratio, free cash flow to operating cash flow ratio, and short-term debt coverage.
While collection ratios are usually classed as an activity ratio, for small businesses they are used to determine the ability of the business to collect cash from credit customers. The two collection ratios used are accounts receivable turnover ratio and the day sales outstanding ratio.
Key shop level financial metrics for auto repair shops include net operating profit, labor gross profit margin, profit centers, gross profit margin, and gross sales.