Blue Elevator Blog

MRx

What’s your MRx?

And what is it, you ask?

It kind of looks like a prescription (e.g., Rx), right?

And, in a way, it kind of is.

Blue Elevator®’s Secret Formula

At Blue Elevator®, we have a lot of secret formulas. And, this is one of them. If you are a Member of the advisory practice, hopefully you already know it.

But, just in case, we are going to give it to you here:

MRx = WC/MFC

Distilling MRx

Now, I will define the variables for you:

WC

WC stands for Working Capital. Additionally, WC is defined as Current Assets minus Current Liabilities. Here’s an article for more information: Working Capital.

MFC

MFC stands for Monthly Fixed Costs. You get these costs from your BE (Break-even) Model. Similarly, here’s an article for more on MFC: The Break-Even Model.

MRx

MRx stands for Months in Reserve. Or, in other words, the number of months of MFC that you have covered or reserved in your WC.

Got it?

What Does This Mean?

There’s an old saying: “In God we trust, all others pay cash.”

Working Capital is more than cash, for sure. Certainly, the general idea is that you want to have positive WC. Furthermore, you might want to know how many months of MFC you can cover in your WC.

Let’s say Joe is the CEO of ACME Corp. And, let’s say his WC is $450. You fill in the blank: millions, thousands, etc. And, let’s say his MFC = $150. Consequently, Joe’s MRx = 3.0 (e.g., $450/$150).

In other words, Joe has 3 months coverage of MFC is his WC.

A Key Metric

Generally, the higher the MRx the better, as it is a measure of your organization’s liquidity.

Additionally, you will find it useful to measure and monitor your MRx. I encourage you to track it. Furthermore, evaluate whether it’s improving, staying the same, or declining — hence, the trend is important.

Of course, it’s important that you have your Balance Sheet and P & L in good shape in order to calculate things correctly.

MRx is Multi-Faceted

The great thing about MRx is that it combines and measures your P & L performance, your expense management, and how you are managing cash.

It’s a composite formula, as it ties a lot of meaningful activity together to give you a real sense into how you and your organization are doing.

Summary

What’s your MRx?  What’s your target?

Certainly, for me, this is something to pray about. Be encouraged to think and pray about what the right target is for you and your organization. Every organization will have a different take and target.

Finally, contact me if Blue Elevator® can help you and your organization manage your Months in Reserve.