Each strategy targets improvement in a specific financial ratio and multiple strategies can be linked together to create an overall ActionPath. When a target is set, the FHR projection model simulates the downstream financial consequences across the income statement and balance sheet — showing how achieving that ratio would change the company's projected FHR. Strategies are applied in the sequence shown below, and the output of earlier strategies feeds into later ones.
1. Revenue Whitespace
Capture untapped growth by identifying and pursuing markets, customer segments, or product lines the business is not yet fully serving.
Target Ratio | Financial Projection Assumptions |
Revenue to Assets (×) | PRIMARY CHANGE: Revenue is scaled to meet the target turnover multiple, with total assets held constant at the reported balance. P&L CASCADE: Cost of goods sold scales proportionally to maintain the current gross margin. Other operating expenses scale proportionally, however Salaries and Wages, Depreciation and Amortization remain constant. The net change will flow through to operating profit and net profit. WORKING CAPITAL CASCADE: Accounts receivable, inventory, and accounts payable are each recalculated at their current days ratios on the new revenue and COGS base, so working capital scales proportionally with the business. BALANCE SHEET CASCADE: The net P&L improvement flows to both cash and retained earnings. |
2. Sales Performance Optimization
Grow revenue by optimizing sales performance across existing product lines, markets, and sales representatives.
Target Ratio | Financial Projection Assumptions |
Revenue to Assets (×) | PRIMARY CHANGE: Revenue is scaled to meet the target turnover multiple, with total assets held constant at the reported balance. P&L CASCADE: Cost of goods sold scales proportionally to maintain the current gross margin. Other operating expenses scale proportionally, however Salaries and Wages, Depreciation and Amortization remain constant. The net change will flow through to operating profit and net profit. WORKING CAPITAL CASCADE: Accounts receivable, inventory, and accounts payable are each recalculated at their current days ratios on the new revenue and COGS base, so working capital scales proportionally with the business. BALANCE SHEET CASCADE: The net P&L improvement flows to both cash and retained earnings |
3. Gross Margin Enhancement
Improve gross profitability through pricing optimization and cost reduction across the product or service mix.
Target Ratio | Financial Projection Assumptions |
Gross Margin (%) | PRIMARY CHANGE: Cost of goods sold is reduced to meet the target gross margin, with revenue held constant. Revenue may reflect a prior uplift from Revenue Whitespace or Sales Performance Optimization. P&L CASCADE: Operating profit increases by the full COGS reduction. WORKING CAPITAL CASCADE: Inventory is recalculated at the current inventory days ratio on the revised COGS. Accounts payable is recalculated at the current payable days ratio on the revised COGS. BALANCE SHEET CASCADE: Cash and retained earnings both increase by the COGS reduction. |
4. Procurement Optimization
Improve gross profitability and reduce indirect overheads by optimizing procurement processes, supplier management, and cost control.
Target Ratio | Financial Projection Assumptions |
Gross Margin (%) | PRIMARY CHANGE: Cost of goods sold is reduced to meet the target gross margin, with revenue held constant. Revenue may reflect a prior uplift from Revenue Whitespace or Sales Performance Optimization. P&L CASCADE: Operating profit increases by the full COGS reduction. WORKING CAPITAL CASCADE: Inventory is recalculated at the current inventory days ratio on the revised COGS. Accounts payable is recalculated at the current payable days ratio on the revised COGS. BALANCE SHEET CASCADE: Cash and retained earnings both increase by the COGS reduction. |
5. Operational Efficiency
Reduce operating costs and overheads to improve the ratio of operating profit to revenue.
Target Ratio | Financial Projection Assumptions |
Operating Margin (%) | PRIMARY CHANGE: Operating expenses are reduced to meet the target operating margin, with revenue and gross profit held constant. Revenue may reflect a prior uplift from Revenue Whitespace or Sales Performance Optimization; gross profit may reflect a prior improvement from Gross Margin Enhancement or Procurement Optimization. P&L CASCADE: Operating profit increases by the full operating expense reduction. BALANCE SHEET CASCADE: Cash and retained earnings both increase by the operating expense reduction. |
6. Working Capital Optimization — Receivables
Accelerate the collection of customer payments to release cash that is tied up in outstanding invoices.
Target Ratio | Financial Projection Assumptions |
Receivable Days (days) | PRIMARY CHANGE: Accounts receivable is recalculated to meet the new Receivable Days target, based on the as-reported revenue figure, or the projected revenue from the Revenue Whitespace or Sales Performance Optimization strategies. BALANCE SHEET CASCADE: The reduction in accounts receivable increases cash by the same amount. No P&L impact; equity is unchanged. |
7. Working Capital Optimization — Payables
Extend payment terms with suppliers to preserve cash within the business for longer.
Target Ratio | Financial Projection Assumptions |
Payable Days (days) | PRIMARY CHANGE: Accounts payable is recalculated to meet the new Payable Days target, based on the as-reported COGS figure, or the projected COGS from the Gross Margin Enhancement or Procurement Optimization strategies. BALANCE SHEET CASCADE: An increase in accounts payable (extended terms) increases cash by the same amount; a decrease in accounts payable reduces cash. No P&L impact; equity is unchanged. |
8. Inventory Management System
Implement just-in-time practices and improved demand forecasting to reduce the amount of cash locked up in stock.
Target Ratio | Financial Projection Assumptions |
Inventory Days (days) | PRIMARY CHANGE: Inventory is recalculated to meet the new Inventory Days target, based on the as-reported COGS figure, or the projected COGS from the Gross Margin Enhancement or Procurement Optimization. BALANCE SHEET CASCADE: The reduction in inventory increases cash by the same amount. No P&L impact; equity is unchanged. |
9. Rationalize Non-Core Assets
Release cash by divesting or redeploying assets that are underperforming or no longer central to the business.
Target Ratio | Financial Projection Assumptions |
Fixed Asset Turnover (×) | PRIMARY CHANGE: Fixed assets are recalculated as revenue ÷ target fixed asset turnover, with revenue held constant. Revenue may reflect a prior change from Revenue Whitespace or Sales Performance Optimization. BALANCE SHEET CASCADE: The reduction in fixed assets increases cash by the same amount, modelling divestment proceeds at book value. No gain or loss is recorded and equity is unchanged |
10. Debt to Equity Conversion
Convert a portion of existing debt into equity to reduce leverage ratios and strengthen the balance sheet.
Target Ratio | Financial Projection Assumptions |
Debt-to-Assets (%) | PRIMARY CHANGE: Term loans are reduced to meet the target debt-to-assets ratio, with total assets held constant. Total assets may reflect prior changes from any earlier strategy. BALANCE SHEET CASCADE: The reduction in term loans is matched by an equal increase in other equity, modelling a debt forgiveness, shareholder loan conversion, or equity capital raise used to retire debt. No P&L impact; no cash impact. |
11. Liquidity Buffer Creation
Establish a minimum cash reserve relative to current liabilities to protect against short-term liquidity shocks.
Target Ratio | Financial Projection Assumptions |
Cash Ratio (×) | PRIMARY CHANGE: A new term loan is drawn to bring cash up to the level required to meet the target cash ratio, with current liabilities held constant. Cash may reflect prior increases from any earlier strategy; current liabilities may reflect prior reductions from Working Capital Optimization — Payables or Debt Restructuring. If the target is already met, this strategy is skipped entirely. BALANCE SHEET CASCADE: Cash and term loans both increase by the shortfall amount. No P&L impact; equity is unchanged. |