Avoid The Business Ditch: Understanding Financial Performance Indicators

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Do you know how hot your company’s financial engine is running?

Countless executives operate with little or no understanding of their company financial performance. Sometimes they survive or thrive in spite of their lack of knowledge. Other times financial blindness leads to a wrecked company. Do not leave the money matters to the accountants. Business leaders in all functional areas can improve their chance of positive personal and business growth by establishing a basic understanding of financial performance indicators.

The primary financial gauges are:

Operating ratios:  Shows how much revenue you generate relative to your assets, how quickly you convert assets into sales and how soon those sales become cash.

Liquidity: The ability to pay bills as they become due.  Current and quick ratios should be greater than one-to-one or you may soon find yourself unable to pay your bills.

Profitability: The return on assets indicator shows the amount of net profit on each dollar of assets. Some of those assets are purchased with equity and debt so the return on equity ratio reveals how much positive leverage the company is generating with borrowed funds.

Leverage: Debt used incorrectly can put your company into an unrecoverable skid. Stay away from credit crises. Keep a close eye on your leverage by using debt-to-equity, debt-to-capital and debt service coverage ratios.

Running a business is like driving a high performance sports car.  The person behind the wheel needs to scan and react to the dashboard instruments.  Avoid a business breakdown by scanning, evaluating and responding to changes in the primary financial indicators.

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About Michael Shelton

Your Business Coach Facilitating Delegation and Work Group Engagement Michael Shelton has over twenty-five years of business and military accomplishments, including extensive experience with one of the largest, publicly traded real estate investment trusts (REIT). He is a qualified business coach with assignments in cross-functional work group management, strategic planning, unit leadership, joint venture acquisitions, executive education, mentoring, training and merger integration. Michael has accumulated best practices for building committed work groups from more than $4 billion of capital markets transactions and commercial property development. He served as a commissioned officer and helicopter pilot in the U.S. Army, and earned his MBA from The University of Arizona. Michael has served as a major conference panelist and is the author of Cash Flow Rich, Winning Ways to Evaluate and Finance Real Estate. Today, he helps business owners get more work group engagement as President and CEO of Shelton Business Services, LLC in Scottsdale, Arizona. Disclaimer: I don't offer investment, legal or tax advice. Talk to your broker, accountant or lawyer for investment, tax and legal help. I might own stock in the companies I mention on-line. My posts, tweets and other on-line activity are my personal thoughts and don't represent my employer or company.
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One Response to Avoid The Business Ditch: Understanding Financial Performance Indicators

  1. Pingback: How to Understand Your Business Operating Ratios | Borrowing Money: Your Handy Guide

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