What Financial Indicators are key to Analyze the Strengths of a Company?

Financial indicators make it possible to take into account the most relevant aspects regarding the economy of a company. Although it may not seem like it, financial statement analyzes make it possible for a company to stay afloat.

Watching the positive and negative sides, you can determine how some business processes are being beneficial or harmful. Some financial indicators are key to these analyzes, 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 will need.

Key financial indicators that demonstrate strength in a company

Liquidity rate

This is one financial rate of liquidity or solvency which 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 any company that has a liquidity rate less than 1, it is possible that it will have difficulty meeting 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 excess debt in financing operations.

In such a case, future opportunities internal to the company in question may be limited. Order is an alternative that could help eliminate this possibility, using procedures, processes and stages of electronic invoicing.

Thus, no data will be misplaced and it is possible that this rate of positive signals for business data.

business finance chart

Net profit margin

This measure compares net earned profit to total revenue, showing the skill of a company to convert the possible sales of a product into economic benefits. 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, when is olderthe better the financial strength of the business. 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 of the company with respect to the use of shareholders’ equity to produce net benefits. It will always be better to have a higher return than a low one, measuring the percentage return on the net investment of the shareholders.

Turnover of accounts receivable

To speak of a company with financial solidity, we must take into account a high liquidity indicator for accounts receivable, which must be high that they are not collected or rotated. Thus, a good turnover of accounts receivable, 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 they are obtained Profits from the accounts 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.

calculation of accounts

Inventory turnover

This is one way the company shows the financial strength together with a true solvency adequate to their inventories. There are some parameters of the inventory control systems that become decisive to favor this task.

If the company moves inventories quickly, the inventory turnover rate it is favorable and thus they will have good financial indicators.

Importance of key financial indicators for business strength

Financial indicators allow us to know what data a company manages in terms of its economy. In turn, these data or figures can be translated into whether there is a strength or not 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 the 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 said company belongs.

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