Due Date Extension: GST and Income Tax

Due Date: 31-Dec-2020

GST Annual Return & Audit (GSTR 9 & 9C) for FY 2018-19

Income Tax Returns where accounts are not required to be audited

Tax Audit Report (Form 3CA, 3CB, 3CD, 3CEB, etc) for FY 2019-20

Due Date: 31-Jan-2021

Income Tax Return where accounts are to be audited for FY 2019-20

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Source: Announced by the CBDT and CBIC through Press Releases today. Notifications to follow.

Performance Metrics for Start Ups

If you run a tech startup, we bet you understand the importance of data and a constant monitoring of your performance across finance and operations with the right metrics.

While working with start-ups, these are the few metrics we use to evaluate financial performance, efficiency in operations and other essentials which investors would love to see during the next investment round.

Here is a quick summary of a few such numbers that you must track as part of your Weekly and Monthly MIS.

Profitability Ratios
Gross Margin	Net Sales - Cost of Goods Sold (COGS)
Operating Margin	Net Sales - COGS - All other expenses excluding interest and taxes = Earnings Before Interest & Taxes (EBIT)
EBITDA Margin	Earnings Before Interest, Tax, Depreciation & Amortization (EBITDA)
Net Profit Margin	EBIT - Interest - Taxes = Profit After Tax (PAT) as a percentage of Revenue
Operating Cash Flow Margin	Net Income + Depreciation + Change in Working Capital
Return on Equity	Net Income / Shareholder's Equity
Return on Assets	Net Income / Total Assets
Working Capital Ratios
Working Capital	Current Assets (incl. Stocks, Debtors, Bank) - Current Liabilities (incl. Payables)
Current Ratio	Current Assets / Current Liabilities
Cash Ratio	Cash & Cash Equivalents / Current Liabilities
Quick Ratio	(Current Assets - Inventory) / Current Liabilities
Efficiency Ratios
Receivable Turnover Ratio	Net Sales / Avg. Debtors [where Avg. Debtors means (Opening Debtors + Closing Debtors)/2]
Asset Turnover Ratio	Net Sales / Total Assets
Fixed Assets Turnover Ratio	Net Sales / Total Fixed Assets
Inventory Ratios
Inventory	Raw Material + Work in Progress + Finished Goods
Inventory Turnover Ratio	Cost of Goods Sold / Avg. Inventory [where Avg. Inventory means (Opening Stock + Closing Stock)/2]
Days Inventory Outstanding	365 / Inventory Turnover Ratio
Cost of Goods Sold	Opening Inventory + Purchases + Direct Costs - Closing Inventory
Carrying Cost	Rent for Warehouse Space + Interest on Working Capital blocked on Unsold Inventory
Economic Order Quantity	√[(2 x Order Cost per Order x Annual Demand) / Annual Carrying Cost per unit]
Safety Stock	(Max Daily Usage x Max Lead Time in days) - (Avg. Daily Usage - Avg. Lead Time in days)
Reorder Level	Lead Time Demand + Safety Stock
Inventory Ageing	Value and Category of Items lying unsold based on length of time
Financial Leverage Ratios
Debt to Equity Ratio	Total Debt / Total Assets
Equity Multiplier	Total Assets / Total Total Equity
Interest Earned Ratio	EBIT / Interest Expenses
Cash Coverage Ratio	EBITDA / Interest Expense
Altman Z-Score	Read here
E-Commerce Metrics
Average Order Value (AOV)	Total Revenue from Orders / No. of Orders placed in a period
Avg. Revenue per User	Revenue / No. of Active Users per Month
Avg. Revenue per Visitor	Revenue / No. of Visitors
Revenue by Product Line	Revenues for each line of product or services
Sales Conversion Rate	Total No. of Sales / Total No. of Sessions on the Store
Cost per Visitor	Total Marketing Costs / Total Visitors
Contribution Margin per Order/Customer	(Revenue - Direct Variable Costs) / No. of Orders
Contribution Margin After Marketing (CMAM)	(Revenue - Direct Variable Costs - Marketing Expense) / No. of Orders
Refund & Return Rate	Sales Return & Refunds / Total Sales
Cost of Returns	Direct Costs incurred on Sales Returns
Monthly Unique Visitors (MUV)	Sum of all visitors from all channels on a website or app in a month
Customer Conversion Rate	No. of Signups per Month / MUV per Month
Shopping Cart Abandonment Rate	No. of People Leaving with Unpurchased Items in Cart / Total Users Adding to Cart
Checkout Abandonment Rate	No. of People Leaving During Checkout without Purchase
Customer Acquisition Cost (CAC)	Marketing Cost / No. of New Customers
Conversion Rate	Net Sales / Avg. DAU or MAU
Lifetime Value (LTV)	CMAM / Churn Rate
LTV / CAC Ratio	(CMAM / Churn Rate) / (Marketing Expense / No. of New Customers)
Payback Period	CAC / CMAM
Customer Retention Rate	Renewing Customers / Total Old Customers
Repeat Customer Rate	Customers Making Multiple Purchases / Total Customers
Cost & Revenue per Campaign	Revenues and Costs attributable to a particular Marketing Campaign
Other Tech Startup Metrics
Daily/Monthly Active Users	Avg. No. of Users per Day (DAU) or per Month (MAU)
Bounce Rate	No. of Visitors who went back inactive / No. of Visitors
Monthly Recurring Revenue (MRR)	Sum of all revenues that automatically renews on a monthly basis
Annualized Run Rate	MRR x 12
Annually Recurring Revenue	(Annual Subscription Price x No. of Subscribers x Renewal Rate) adjusted for growth
Revenue Multiples	No. of Orders x Avg. Price per Order x New Subscribers
Growth Multiples	Avg. Daily New Subscribers x Avg. Daily Revenues
Revenue per Employee	Net Revenue / Avg. No. of Employees
Churn Rate	No. of Lost Customers / Total Customers
Burn Rate	Avg. Amount of Cash lost per Month
Viral Coefficient	No. of Existing Customers x No. of Invitations sent per Customer x Conversion Rate / No. of Existing Customers
Impressions	No. of Times your Ad is presented to someone
Reach	Total No. of followers or subscribers
Engagement	Reach / Impressions
Click Through Rate (CTR)	No. of Subscribers clicking on the Content sent via Email or otherwise
Organic Acquisition Traffic	Customers Acquired per period without paying for advertisement

Altman Z-Score: Financial Strength Test in Your MIS

The pandemic has brought many businesses to its knees, which now have an even higher amount of debt, continuing fixed costs, and lower contribution margins owing to sub-par sales figures.

Such times bring about the need for greater discipline in financial management. At this juncture, we recommend businesses to use the following test to track its credit strength and financial performance over the next few months, to ensure that it's on the path to recovery.

Objective of the Altman Z-Score

1. Predicting Bankruptcy: The Z-score is a value derived by running a test of credit strength on a business. The formula is used to predict the probability of an entity going into bankruptcy within two years.

2. MIS Reporting: Companies may use the formula to check their financial health by using simple values as taken from their profit & loss statements and balance sheet, computed as part of its MIS report. The score takes into account profitability, leverage, liquidity, solvency and activity of the enterprise.

3. Investment Decisions: Consider purchasing a stock if its Z-Score value is near 3, and consider selling if the value is closer to 1.8.

4. Economic Analysis: Prof. Altman had calculated that the median Z-score of manufacturing companies in the US in 2007 was 1.81. Such companies had a credit rating of B, mostly. This indicated that 50% of the firms should have had lower ratings, were highly distressed and had a high probability of becoming bankrupt. These calculations led him to believe a crisis would occur due to corporate defaults, which trickled in during 2009.

Calculation Formula

Where

A = Working Capital / Total Assets

B = Retained Earnings / Total Assets

C = Earnings Before Interest & Tax (EBIT) / Total Assets

D = Book (or Market) Value of Equity / Total Liabilities

E = Sales / Total Assets

For Privately Held Manufacturers: Z = 0.72A + 0.84B + 3.107C + 0.42D + 1.0E

For Publicly Traded Manufacturers: Z = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

For Non Manufacturers: Z = 6.56A + 3.26B + 6.72C + 1.05D

For Emerging Markets: Z = 3.25 + 6.56A + 3.26B + 6.72C + 1.05D

 

Evaluation

Private Manufacturing Companies:

Score                        Meaning

Below 1.23               Distress Zone - heading towards bankruptcy

1.23 to 2.9                Grey Zone - focus should be on improvement

Above 2.9                Safe Zone - good financial health

Public Manufacturing Companies:

Score                        Meaning

Below 1.8                 Distress Zone - heading towards bankruptcy

1.8 to 3                     Grey Zone - focus should be on improvement

Above 3                    Safe Zone - good financial health

Private Non Manufacturing Companies:

Score                        Meaning

Below 1.1                Distress Zone - heading towards bankruptcy

1.1 to 2.6                 Grey Zone - focus should be on improvement

Above 2.6               Safe Zone - good financial health

Calculation Sheet for Your MIS

Link

GST ITC Reconciliation with GSTR-2A

Necessity of GSTR-2A Reco from Feb to Aug 2020

Rule 36(4) of the CGST Rules allows for ITC to be availed up to maximum of 110% of amount appearing in GSTR-2A at the time of filing of GSTR-3B.

Among the pandemic linked compliance relief measures announced by the government, one under GST laws was announced vide notification No. 30/2020-CT dated 03-Apr-2020, by which the rule of 110% of ITC appearing in GSTR-2A was to be looked at cumulatively for the tax periods from Feb 2020 to Aug 2020, finally adjusted in the GSTR-3B for September, 2020.

Accordingly, all tax payers are advised to ascertain the details of invoices uploaded by their suppliers under Section 37(1) of the CGST Act for the periods from Feb to Aug till the due date of filing Form GSTR-1 for September 2020 as reflected in GSTR-2A.