What are financial indicators

what are financial indicators

Key Financial Indicators and Ratios

Being able to summarize your important financial points allows the Lender/Investor insight into whether or not you understand how the money world operates.

Provide support for:

  • Sales revenue
  • Price points
  • Fixed costs
  • Gross margins
  • Net income

The financial industry judges your potential success by Risk Management Association (RMA) standards and ratios. If you’re not a good numbers person ask your accountant to calculate the following ratios:

  • Current Ratio (1 to 1 or better)
Current assets divided by current liabilities.
  • Quick Ratio (0.5 to 1 or better) Current assets less inventory divided by current liabilities.
  • Debt to Worth Ratio (3 to 1 or better) Creditors capital to owners capital.
  • Gross Profit Margin (60% or better) Gross

    sales less cost of goods sold.

  • Net Profit Margin (10% or better) Gross sales to net income.
  • Debt Coverage Ratio (1.25 to 1 or better) Net income divided by debt payment (Principal & Interest).
  • A/R Turnover Ratio (as close to 12 as possible) Gross Sales divided by accounts receivable.
  • "SIC" Standard Industrial Code (know yours)

    Lenders will compare your ratios to those of your industry.

  • There are many good computer financial programs available to assist you in formatting your projections. If you aren’t computer literate, recruit someone who is. After you have taken a run at the numbers by yourself.

    It is always a good idea to have your accountant look them over and to have someone with industry experience review them, such as a Service Corps of Retired Executives (SCORE) counselor.

    Source: www.businessfinance.com

    Category: Forex

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