It is very important that you as a financial professional know how your or another organization is doing financially. Of course you also want to be able to follow developments and make adjustments where necessary. Fortunately, there is usually an abundance of data. But it is precisely because of this abundance that it is necessary to maintain an overview. You can use key figures for this, such as financial ratios.
In order to be able to follow the financial development of an organization, not only the balance sheet and profit and loss account of a company are considered. For this you also look at the mutual relationships in those overviews over a longer period of time. These interrelationships are called ratios or key figures. They contain concentrated information and thus provide a quick overview. Using the llc tax calculator is important.
The most commonly used financial ratios
The most commonly used ratios are the liquidity ratio, the solvency ratio and the profitability ratio. You calculate this with data from the balance sheet and the profit and loss account. The liquidity of a company shows to what extent the organization is able to meet its financial obligations in the short term. The best-known liquidity ratio is the current ratio. Solvency is a financial index that indicates the relationship between loan capital and equity capital on the balance sheet and shows the extent to which the company is dependent on creditors and indicates the extent to which the organization can meet its payment obligations when it goes bankrupt.
So it concerns the composition of the liability side of the balance sheet. Banks logically use this ratio when a credit application is made. The bank regards the company as ‘financially healthy’ if the outcome is between 25 and 40 percent. With a profitability ratio you express the yield as a percentage of the total capital (RTV), the equity capital (REV) or as a percentage of the loan capital (RVV). These provide insight into the profitability of the organization.
Other tools about working capital and profit margin
In addition to calculating the financial ratios for your company, it is also important to take a critical look at the net working capital (tools). You calculate the current ratio on the basis of the components of the net working capital (NLF), but assume that money is collected for the stocks and the debtors (tools) in the short term and that payment for all short-term liabilities is made in the short term. can be performed. .
Key figures are not only financial
Key figures do not only contain financial information. After all, the financial results of a company are related to its business operations. That is why most indicators are not only financial anymore, but they are also about marketing or innovation. In addition, it is good to take a look at the internal processes of your organization, which should ultimately lead to the profit margin that you are aiming for. Your processes can be divided into primary and secondary processes. To map out these processes, you can use the Porter value chain.