Financial ratios are essential tools for business owners to assess their company’s performance, stability, and growth potential. By regularly monitoring these ratios, business owners can make informed decisions, identify trends, and address potential issues before they become significant problems. Here are some crucial financial ratios every business owner should keep an eye on.

1. Current Ratio [Current Assets / Current Liabilities]

2. Quick Ratio (Acid-Test Ratio) [ (Current Assets - Inventory) / Current Liabilities]

3. Debt-to-Equity Ratio [Total Liabilities / Shareholders’ Equity]

4. Gross Profit Margin [ (Revenue - Cost of Goods Sold) / Revenue]

5. Net Profit Margin [Net Income / Revenue]

6. Return on Assets (ROA) [Net Income / Total Assets]

7. Return on Equity (ROE) [Net Income / Shareholders’ Equity]

8. Inventory Trnover Ratio [Cost of Goods Sold / Average Inventory]

9. Accounts Receivable Turnover Ratio [Net Credit Sales / Average Accounts Receivable]

10. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) Margin [EBITDA / Revenue]

Regularly monitoring these financial ratios can provide business owners with valuable insights into their company’s financial health and operational efficiency. By understanding and analysing these ratios, business owners can make informed decisions, identify areas for improvement, and ultimately drive their businesses toward greater success. HVJ & Associates is here to provide any assistance or support on the aforementioned topics or other accounting and audit-related matters.

Whether you are managing a start-up or an established enterprise, keeping an eye on these financial indicators is essential for sustained growth and profitability.