Profit and liquidity answer different questions. Profit measures performance under accounting rules, while cash indicates the ability to meet obligations. Rising sales alone do not establish healthy performance.
1. Gross profit margin
Divide gross profit by revenue and multiply by 100 when revenue is positive. Compare consistent periods and examine product mix, discounts and cost. A lower margin does not establish a single cause: prices, mix or cost allocation may have changed.
2. Operating cash flow
Compare it with net profit across several periods. Profit combined with weak operating cash flow may reflect overdue collections, inventory build-up or payment timing. Use the cash-flow statement and reconciliations to investigate rather than treating this measure alone as a verdict.
3. Average receivable days
For a management estimate, divide average trade receivables by credit sales for the period and multiply by its number of days, using a consistent tax and balance basis. If credit sales are unavailable or zero, do not present a misleading figure. Review ageing, seasonality and credit terms alongside the average.
Turn interpretation into action
Identify the change, validate the data, investigate the cause and assign an action owner. Prof Accountant builds recurring reports connecting profitability, cash and collections with consistent metric definitions.