As a small business owner, you work hard to make your business a success. You record your financial transactions, and whether you use your own software, or you ask your accountant to prepare them, from time to time you print a financial report and look at your business' financial performance.
However, those reports, commonly your Profit & Loss and your Balance Sheet, can only tell you so much about your business. They will give you clear information about the dollars at play, but how is your business performing really, from year to year?
That's why it is important to review financial ratios from time to time.
Financial ratios are the relationships between key numbers in your accounts.
Some financial ratios tell you about the profitability of your business. Others inform you about your liquidity, and yet others will tell you about the efficiency of your financial assets.
An example of a financial ratio providing information about your profitability is your Return on Equity, or the rate of return on the investment you have made in your business. If your Return on Equity is 6% and bank interest on an equivalent investment with no risk is 2% you need to ask yourself if the extra 4...
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8 Financial Ratios To Measure Your Business Performance
