Making the Most of Financial Ratios
Employ financial ratios to maximize profits, minimize loss and improve your company
If you're not an accountant or financial analyst, one look at a list of financial ratios may give you a number-induced headache. However, these economic ratios are a key factor in improving the way the company works and increasing revenue. In making the most of financial ratios, not only must you understand the basics of ratios, but also how to use them in an effective manner. Financial ratios in addition to providing a snapshot of your company's fiscal fitness, they also offer a means of comparison to competitors and the industry as a whole.Making the most of financial ratios requires a better understanding of what these ratios mean in a larger context. Liquidity ratios, for example, can give you a status of the company’s credit worthiness, and act as a comparison tool to other companies. This influences the company's ability to attain and keep a healthy credit rating. Moreover, if you want to maximize the utility of financial ratios there are few items to consider, such as:
1. Purchase financial ratio analysis improvement aides.
2. Utilize standard financial ratios industry comparison tools.
3. Make use of financial ratios templating and tutorials.
Acquire tools to help with the analysis of financial ratios
To get beyond the basic inputting and calculating of financial ratios and truly make the most of these ratios, you should understand how to interpret these figures. A financial ratio such as the current ratio by itself tells you nothing. However, if you can apply this figure in the context of the business operations, it'll help improve your company.
Try: Obtain a copy of The Power of Ratios—Learning What the Numbers Are Really Telling You from Harvard Business Publishing. Examine the uses of financial analysis with ratios at eSmallOffice.
Contrast your business' financial ratios with industry standards
Financial ratios also offer an opportunity to gauge the company against industry leaders and competitors. These figures make an excellent tool to determine if your company is price and performance competitive.
Try: Employ the industry analyses from VentureLine to verify the financial status of your company. Buy industry financial ratio profiles from BizMiner. Its Industry Report Center offers detailed industry profiles including financial ratios for 10,000 lines of business including profit and loss statements, balance sheets and more.
Use applications to help in calculating financial ratios
Financial ratio calculation is much easier if you take tutorials and use templates. Templates reduce the time and error probability when computing these financial ratios. In addition, a ratio tutorial can assist in understanding the application of the ratios, which not only helps you make the most of using financial ratios, but it also makes the most of your time.
Try: Purchase the Excel ratio templates from MyWorkTools.com. This tool helps determine the overall health of your company by looking at items such as cost of goods sold, revenue, operating expenses and more to calculate liquidity, key activity, productivity ratios and coverage. Take the ratio tutorial available at Adayana. This course helps you learn and make the most of liquidity ratios, solvency ratios, profitability ratios, efficiency ratios and asset utilization ratios.
- Calculating economic ratios is important to your company, but living by numbers alone won't allow your company to prosper. An effective business combines an efficient use of financial ratios with an employee friendly work environment. Some policies may help your fiscal fitness, but end up damaging company morale.
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