As an entrepreneur sometimes you are required to be everything in your business especially when starting out. Financial management is always a challenge when working without an accountant. Ratio analysis is a tool that allow you to trend in your performance as well as compare how you are doing financially compared to others in your industry.
Here are 15 Financial Ratios that you can use to manage your business when starting up
Profitability Ratios
Gross Profit/Sales = Gross Profit Margin
Operating Profit/Sales = Operating Profit margin
Net Profit/ Sales = Net Profit Margin
Net profit/ Owner’s Equity = Return on Equity
Net Profit/Total Asset = Return on Assets
Liquidity Ratios
Current Assets/Current Liabilities = Current Ratio
(Current Asset- Inventory)/ Current Liabilities = Quick Ratio
Working Capital/Sales = Working Capital Ratio
Activity Ratios
(Account Receivables*365)/ Sales = Account Receivables Days
(Inventory*365)/Cost of Goods Sold = Inventory Days
(Accounts Payable*365)/Purchases = Account Payable Days
Sales/Total Asset = Sales to asset
Leverage Ratio
Total Liability/Owner’s Equity = Debt to Equity
Total Liabilities/Total Asset = Debt Ratio
(Net Income+depreciation)/Current Maturities of |Long Term Debt = Debt Coverage Ratio