How to Use Financial Ratios In Your Business

Do you have a financial ratios helping you analyze your business’s financial performance and position?  If not, it might be worth thinking about.  For a long time, financial ratios have been used to measure and evaluate the performance of a company, Investopedia has a full listing of the ratios you can use to measure liquidity, profitability, debt, cash flow and more.

According to the website, ReferenceforBusiness.com, “Ratios are determined by dividing one number by another, and are usually expressed as a percentage. They enable managers to examine the relationships between seemingly unrelated items and thus gain useful information for decision making. “They are simple to calculate, easy to use, and provide a wealth of information that cannot be gotten anywhere else,” James 0. Gill noted in his book Financial Basics of Small Business Success. “

Using financial ratios provide a clear visual of exactly which areas of your company are performing well, staying the same, and doing worse.  It is completely user-friendly way to take data and make it actionable.

There are different ways that you can track ratios, the first being in Microsoft Excel.  This method is great for DIY users because it allows for complete customization and accessibility is always there when you need it.  Another option is to outsource your work and get a professional to draw one up for you.  Doing it this way is a great option because you can get their input and maybe some other advice on how to run this easier.  As a third option, you can use software that you can directly link to your accounts.  The use of software can simplify everything because you won’t have to manually enter all of your data; it will do all of that for you.

Overall, Financial Ratios can help you figure out which direction your company needs to go.  It is a quick and easy, time-saving tool that can save you money in the long run.

 

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