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Financial Ratio Analysis: Spot and Correct Financial Problems Early

 
  Arthur F. Rothberg, Managing Director, CFO Edge, LLC  
   
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  Article Summary  
“If you can measure it, you can manage it.” This is especially true when it comes to business finances.

One of the best ways to measure the financial performance of your business is to calculate and monitor several key financial ratios. These are comparisons of financial metrics—like current assets and liabilities, debt and equity, sales and cost of goods sold—that can help CEOs and CFOs spot potential problems before they get worse.

This article looks at six key financial ratios—current ratio, debt-to-equity ratio, days sales outstanding, accounts receivables days, accounts payable days, and inventory turnover—and discusses frequently targeted benchmarks.

As they continue to face economic headwinds in this uncertain recovery, Los Angeles and Southern California CEOs and CFOs should take advantage of every opportunity to improve the financial management of their companies—including financial ratio analysis. A provider of outsourced CFO services can help you identify the most important ratios for your business and then calculate, monitor and track these ratios on a consistent basis.

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