Marginal Cash Flow Percentage is calculated as follows:
Gross Margin % - Working Capital %

It shows as a percentage what cash will be available for your overheads and profit once you direct costs have been covered.

Therefore, it helps to answer a very important question.  Given my current business situation is it worth trying to generate more sales, i.e., will more sales lead to greater profit or less.

What is your Gross Margin Percentage?
(Sales – Cost of Goods Sold or Cost of Services) / Sales.  

Shows you the percentage of profits generated before your overhead expenses are covered.

What is your Working Capital Percentage?
Sales / (Current Assets – Current Liabilities)

Shows whether or not your business has an adequate amount of funds invested to support its sales.  It also can show that your business may have too much working capital in relation to its sales, i.e., it may be carrying too much stock or WIP or have slack payment terms with its customers.

If you would like to discuss further please contact us:
McNamara and Co - Chartered Accountants, located minutes from the Melbourne CBD
www.mcnamaraandcompany.com.au/contact-us
Phone +61 3 9428 1062
Email admin@mcnamaraandco.com

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