AOV
Def: Average order value (AOV) is The average order value over a specified period. Formula: total order value / number of orders
Desc: Average order value helps founders understand the revenue potential of their customers and identify opportunities to increase revenue. By increasing AOV, startups can increase revenue without having to acquire more customers.
ARR
Def: ARR or Annual Recurring Revenue is a financial metric that measures the recurring revenue a company generates in a year. Formula: MRR x 12
Desc: ARR indicates the company's growth potential, ability to generate predictable revenue, and potential value of the company.
Average transaction value
Def: This measures the average amount of revenue generated per transaction. Formula: Total transactions/count of transactions
Desc: Average transaction value helps founders understand the revenue potential of each transaction and identify opportunities to increase revenue.
CAC
Def: CAC measures the cost of acquiring new customers. Formula: total costs of sales and marketing efforts / number of new customers acquired.
Desc: This metric is important for startups because it helps them understand the efficiency of their customer acquisition efforts and the return on investment of their marketing and sales strategies.
Cash Runway
Def: The cash runway shows how long a company can remain in business before reaching $0. Formula: current cash balance/burn rate.
Desc: It helps founders understand how long they have until they run out of cash.
Current Ratio
Def: The current ratio measures a company's liquidity (current assets / current liabilities)
Desc: It is important for startups as it indicates their ability to meet short-term financial obligations and manage working capital. A ratio greater than 1.0 is generally seen as positive
DSCR
Def: The Debt Service Coverage Ratio (DSCR) is a financial metric that is used to determine a company's ability to pay off its debt obligations. (net operating income/total debt service)
Desc: A higher DSCR indicates that a company has a greater ability to service its debt, which is generally seen as a positive sign for investors. A ratio of 1.0 or higher is often considered healthy.
EBITDA
Def: EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) is a financial metric that is used to measure a company's operating performance. (net operating income + interest + tax + depreciation + amortisation)
Desc: EBITDA is often considered an important metric for investors because it provides a picture of a company's cash flow and ability to generate profits. Additionally, EBITDA can be used as a benchmark to compare the performance of a company against its peers in the same industry.
FCCR
Def: The Fixed-Charge Coverage Ratio (FCCR) is a financial metric that is used to measure a company's ability to meet its fixed financial obligations. (EBIT + Fixed charge before tax) / (Fixed charge before tax + Interest)
Desc: A ratio of 1.0 or higher is considered healthy, as it indicates that a company is generating enough income to cover its fixed expenses.
FCF
Def: Free cash flow (FCF) is a financial metric that measures a company's ability to generate cash after accounting for capital expenditures. (Net Income + Depreciation and amortisation (non cash expense) - Working Capital Variation - Purchases of PP&E (CAPEX))
Desc: FCF is important because it provides insight into a company's ability to generate cash flow from its operations, which is a key indicator of its financial strength and stability.
Gross profit margin
Def: Gross profit margin measures a company's profitability by comparing the cost of goods sold (COGS) to its total revenue. (gross profit / net sales)
Desc: Gross profit margin provides insight into a company's pricing strategies and cost structure. A higher gross profit margin indicates that a company is able to sell its products or services at a higher price relative to its costs.
LTV
Def: the average revenue that a customer will generate throughout their lifespan for the given period.
Desc: By calculating your customer's LTV, you can get a better idea of how much each new customer will add to your overall revenue and how much you can justify spending on customer acquisition.
LTV:CAC
Def: Measures the relationship between the lifetime value of a customer (LTV) and the cost of acquiring that customer (CAC). Formula: LTV / CAC.
Desc: This metric is important for startups because it helps them understand the profitability of their customer acquisition efforts.
Monthly Gross Burn
Def: measures the rate at which a company is spending its available cash. Formula: total cash available at the end of the month - total cash available at the beginning of the month
Desc: This metric helps a founder understand how much money they are spending each month, and how much runway they have.
MRR
Def: MRR measures the predictable recurring income that a company can expect to receive from its customers each month. Formula: average revenue per account x total number of accounts
Desc: MRR helps founder’s understand the growth and predictability of their revenue, which is crucial for planning and forecasting future expenses and investments.
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