Financial ratios aren’t usually the first topic at cocktail parties. But for small business owners, maybe they should be. A solid understanding of the role of ratios can be an important measure of success.
Here are three reasons why:
Ratios can be applied to and illustrate performance in several areas within your business such as:
As an example, here’s a deeper look at income statement ratios from a Northern Initiatives Business Services tool called the Financial Ratios Scorecard:
*How to Read Ratios: For every $1.00 of (bottom of equation) you have $X or X% of (top of equation)
Northern Initiatives customers have access to the full Scorecard and many other business services tools designed to help you grow your small business.
TIP: Feel intimidated by calculations? Ratios measure one number against another so if you can divide, you can calculate a ratio.
You can use ratios as a tool to calculate your Gross Profit Margin.
In this example, for every $1 in sales, there are $0.29 of gross profit.
Need help? View this short video to learn more about the value of your business’s financial ratios.
Use ratios to take a concerted look at your small business and plan a course for greater success. That will give you plenty to discuss at the next party.