Analysis for Managers: Financial Ratios
If I were to tell you that someone weighs 75 lbs, you might say that he/she is a very light person. But what if I told you that person was a one-year-old? You would probably either fall off your chair, drop you phone on the ground or just flat out think I was bluffing.
And what if I told you that a certain company made a $1 million profit last year? Sounds like a big number, right? Does it change your perspective if I tell you that this company did $100 billion in sales last year? That’s only a 0.1% profit margin. Pretty slim in all reality.
The lesson here is a lesson on relativity. Measurement often becomes much more insightful when taken in context and shown with or in contrast to another measure. Weight to height, cost per square foot, profit to sales, short term assets to short term liabilities, etc.
Going along with our last post on cash flow, today we’re going to provide you with a quick list of places to go to find financial ratios that will help you dig a little deeper into your business’ financials. Here are three very useful sites on the subject:
- Simple, easy to understand explanations of key financial ratios
- Provides a quick reference guide separated by topic with easy calculation references
- A detailed guide to analyzing your small business financials—very helpful!
We hope these three resources, along with any others you find, will help you to do an even better job managing your business in order to keep serving your customers and taking care of you and yours.