Financial Operating Ratios for Software Companies: A Benchmark of Financial Performance

 
9781581280210: Financial Operating Ratios for Software Companies: A Benchmark of Financial Performance

Financial Operating Ratios for Software Companies 1997-98 is the resource software executives use to develop their companies' budgets and benchmark their budgets against their peers. This report contains detailed data regarding income statements, balance sheets, accounting practices, ratios, and headcount distribution for more than 100 software companies. To make it easy to compare your company to similar firms, we have segmented the data by the participating companies: Annual Revenue; Professional Services Offerings; Growth Rate Profitability; Average Order/Contract Size; Primary Product Type; Percent of Hardware Sales; Type of Company Ownership; and Selling Method. Segmenting out the finacial data gathered from fast growth and high profit companies is a new feature of this year's report. Benefits of Financial Operating Ratios for Software Companies 1997-98 Since 1992, Culpepper and Associates has published this guide of financial performance and practices in the software industry. This year, Culpepper teamed with Coopers & Lybrand L.L.P, a leading provider of fully integrated services to the software industry, to publish the 5th Edition. We have designed this report to be a valuable tool for defining company objectives. Our in-depth analysis of software accounting practices, operating ratios and financial performance brings you reliable, documented information for guiding business strategy. With Financial Operating Ratios for Software Companies, you will be able to: Maximize Your Competitive Position; Track Decision Success; Determine Your Financial Position; Gain Financial Perspective; Remain Financially Flexible; Manage Expenses; Allocate Resources and Measure Performance; Discover Whats New in Software Accounting; and Maximize Your Competitive Position. Financial Operating Ratios for Software Companies 1997-98 has income statement data that software executives can use to benchmark their company's statements against their peers'. To maximize competitive position, software companies must constantly benchmark themselves against the industry. The various types of software, the mix of products and services sold, and inconsistencies in the way that companies report similar transactions has traditionally made it difficult for software companies to gauge their performance against others. The findings in Financial Operating Ratios for Software Companies have been structured to facilitate deeper analysis than normally possible. The 1997-98 findings reflect greater consistency in the classification of functional costs and expendituresmaking data more useful for benchmarking purposes. Accounting policies in the software industry are not static. They continue to change as licensing arrangements become more complex to match evolving technology. The biggest potential change in accounting practices that software companies face in the next few years is the adoption of Statement of Position No. 97-2 (SOP 97-2) issued in October 1997 and superseding SOP 91-1. The American Institute of Certified Public Accountants (AICPA) intends SOP 97-2 to provide greater consistency in the way software companies record revenues. To address this change, we have focused this report on various revenue recognition policies, including how software companies are currently accounting for software licensing arrangements with more than one element. This report also looks at policies related to capitalizing software development costs under SFAS No. 86 and accounting for mergers and acquisitions. The balance sheet provides a view into the companys resources (assets) and external party claims on those resources (liabilities and equity). Evaluating the information provided by the balance sheet can help you identify the financial strengths and weaknesses of a software company, as well as assess its liquidity and solvency. Based on participants responses, Financial Operating Ratios for Software Companies includes uniform balance sheets to show the impact of various criteria on the structure of a software firms assets, liabilities and shareholders equity. Using these balance sheets, we also analyzed the impact of size, growth rate, profitability, product type, ownership and other factors on key asset and liability categories. The 1997-98 report places particular focus on comparing Fast Growth companies to High Profit companies. Liquidity ratios are among the first items that investors, creditors, lenders, and analysts view to determine the financial position of a company. Liquidity ratios can indicate whether a company has the ability to use its assets to meet creditor obligations. They also suggest the timeframe necessary to convert a companys assets to cash. Financial Operating Ratios for Software Companies presents data on several common liquidity ratios, including quick and cash ratios and days sales outstanding (DSO). The unique characteristics of software companies drive many of the relationships revealed through safety and leverage ratios. Most developing software companies cannot rely on their local bank to finance their growth, and their often greatest asset, human technology talent, cannot be reflected on a balance sheet. Software companies must remain flexible to react to rapid technological change and quickly evolving competitive environments. The more the company has financed its activities with trade payables, the less financial flexibility it has. Safety and leverage ratios are important indicators of a software companys ability to react to rapid technological change and quickly evolving competitive environments. Leverage ratios, such as the debt-to-equity and the debt ratios, provide insights into a companys use of debt to finance growth. We have analyzed leverage in relation to several factors including company ownership, profitability, and revenue size. Financial Operating Ratios for Software Companies also provides an analysis of safety ratioswhich are indicators of financially security in regard to meeting short- and long-term obligations. Since financial footprints and competitive environments are dramatically different among industries, it is important to gauge a companys performance against companies in the same industry. The profitability ratios in this report, including gross profit margin, operating margin, return on assets, and more, are derived from the software companies of today but may provide invaluable strategic intelligence to construct the software companies of tomorrow and beyond. Profitability ratios measure the efficiency of a company's investments. A set of useful tools, such as the benchmarking ratios presented in Financial Operating Ratios for Software Companies will assist even the most adept manager in maintaining appropriate levels of financial assets. Benchmarks based on ratios can yield more useful results when trying to decide how to allocate sales and marketing expenses. Financial Operating Ratios for Software Companies provides an analysis of sales and marketing expense ratios based on revenue size, type of ownership, and type of company. This allows software companies to review their performance against their closest peers. To capture the productivity of sales and marketing efforts, we have reviewed the data based on two main indicators: sales and marketing expenses, and the number of sales and marketing employees. The ratios we analyze include these two indicators as a percent of total sales, new sales, and return on expenses. This report also includes a benchmark of the prevalence of international sales as a percentage of total sales for different software company categories. People-centric businesses like the software industry have been hard hit by the tight labor market of the late 1990s. Knowledge workers are in especially short supply. In fact, according to the ITAA, early this year, 346,000 of the total positions available to core IT workers were unfilled. Finding an available labor pool is only half the battle. Software companies are often hard pressed to find employees with the right technical skill sets. And todays software employees need more than just technical skills, they need strong business skills as well. In turn, software executives are keeping close tabs on the productivity performance of their employees. Ratios such as revenue per employee and median compensation per employee have taken on strategic importance. Financial Operating Ratios for Software Companies examines human resource performance and complements the financial ratios provided. In addition to productivity benchmarks, this report also discusses the current allocation of employees by functional departments. Software companies can use this information to evaluate their labor productivity and functional distributions as compared to the efficiencies of the overall industry.

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Focused exclusively on software industry business issues, Culpepper and Associates has become well known as the source for software industry intelligence. Our mission is to provide our clients with the most current information available on software industry trends and practices. Culpepper and Associates conducts primary research on a variety of topics of interest to our clients. We distill response data into meaningful trends and information and publish the results in a series of desktop reference sets for all functional areas of a software company including: human resources, finance, sales, marketing, customer support, product development and professional services. Our analysis gives software business leaders insights into critical issues such as compensation levels, pricing trends, financial performance ratios, sales motivation, organizational structures, product planning, and marketing budgets. Coopers & Lybrand L.L.P. is a leader in providing fully integrated services to software companies. Whether your company needs accounting, tax, human resource advisory, financial advisory or consulting services, Coopers & Lybrand has the scope and depth of expertise to help you compete and succeed in the growing and rapidly changing software industry. Coopers & Lybrand is recognized as one of the worlds leading professional services firms with more than 16,000 professionals in over 120 US cities. Through the members of Coopers & Lybrand International, we have more than 70,000 professionals in over 130 countries worldwide.

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