Financial indicators allow taking into account the most relevant aspects regarding the economy of a company. Although it may not seem like it, financial statement analysis makes it possible for a company to stay afloat.
Looking at the positive and negative sides, it is possible to determine the way in which some business processes are being beneficial or detrimental. Some financial indicators are key to these analyses, so they must always be taken into account.
So that you know what they are and apply their analysis in your company, you just have to keep reading and find out what you are going to need.
Key financial indicators that demonstrate strength in a company
Liquidity rate
This is a financial rate of liquidity or solvency that helps determine the strength of a company. With it, the ability of a company or its leaders to pay short-term debts is shown, thus giving the solvency of the business.
If there is a company that has a liquidity ratio of less than 1, it is possible that it will have difficulties to cover its financial responsibilities.
Debt rate – Net worth
An important financial indicator is to know the parameters for the strength of a company, the resulting calculation of the debt rate and the net worth can refer to an excess of debts in the financing of operations.
In such a case, future opportunities within the company in question may be limited. The order is an alternative that could help eliminate this possibility, using procedures, processes and stages of electronic invoicing.
Thus, you will not have any data out of place and it is possible that this rate of positive signals for business data.
Net profit margin
This measure compares net profit to total revenue, showing a company’s ability to convert potential product sales into economic profit. This is reflected in the ability to pay dividends, giving ideas to strengthen the company and improve other rates of return.
This margin takes into account all expenses, and the higher it is, the better the financial strength of the company. Everything varies according to the industry, being possible to buy a margin with another of the competing companies.
Return on equity
This indicator shows the efficiency that the company has with respect to the use of its shareholders’ equity to produce net profits. It will always be better to have a higher return than a low one, measured as the percentage return on shareholders’ net investment.
Accounts receivable turnover
To speak of a company with financial solidity, we must take into account a high liquidity indicator for accounts receivable, which must be high so that they are not collected or rotated. Thus, a good rotation of accounts receivable is ruled out, indicating the quality module and the efficiency of the assets.
In this way, the strength of the credit policies of the companies is visualized and how many times in the year benefits are obtained from the accounts that have to be collected. From platforms or programs such as Microsoft Excel, the calculation of this rotation may be easier, since it provides the necessary tools to do so.
Inventory turnover
This is a way in which the company shows the financial strength together with a true solvency appropriate to its inventories. There are some parameters of inventory control systems that become decisive to favor this task.
If the company moves inventories quickly, the inventory turnover rate is favorable and thus good financial indicators will be had.
Importance of key financial indicators for business strength
Financial indicators allow us to know what data a company handles in terms of its economy. In turn, these data or figures can be translated into whether or not there is a strength in the policies or management of the given resources.
All this is a balance that is essential to know what are the necessary movements that must take place at a financial level. Well, it will be known if those that are already known should be maintained or apply others that help to have better results.
Each company decides how to handle its data and thus creates a global finance circle that has an impact on the industry to which that company belongs.
