How Well Do You Know Financial Ratios and KPIs for Small Businesses?

Study Notes

Financial ratios are tools that can turn raw numbers into information to help manage a business better.
They can be used to analyze trends, compare businesses to competitors, and measure progress towards goals.
Financial ratios are a type of KPI that only use information found on financial statements.
The seven best financial ratios for small businesses to track are cash flow to debt, net profit margin, gross margin ratio, quick ratio, accounts receivable turnover, inventory turnover ratio, and sales per employee.
Cash flow to debt ratio can be a useful red-flag predictor for small business failure.
Net profit margin shows how successful a company is at managing costs and converting revenue into profits.
Gross margin ratio indicates how much money is remaining to pay for other necessary business expenses.
Quick ratio measures liquidity and tells whether there are enough current assets to cover current liabilities.
Accounts receivable turnover measures how long it takes for a company to be paid once a sale has been made.
Sales-per-employee can be a good estimate for companies that need a lot of employees, like service-based businesses.
Financial ratios provide a snapshot of a company's financial health at a single moment in time.
To make the most of financial ratios, it's best to track and compare them over time.
Keep a spreadsheet of the ratios calculated every quarter.
Regularly assess the health of the business by analyzing the ratios.
Looking at trends in ratios can help plan for and avoid negative situations.
KPIs (Key Performance Indicators) are important to track in addition to financial ratios.
KPIs are specific metrics that measure the success of a business in achieving its goals.
KPIs can include metrics related to sales, customer satisfaction, and employee performance.
KPIs should be tailored to the specific goals and objectives of the business.
Regularly tracking and analyzing KPIs can help a business make data-driven decisions and improve performance.

Description

Do you know which financial ratios are best for measuring the financial health of a business? Take this quiz to test your knowledge and learn about the seven key financial ratios that small businesses should track. Discover how to use financial ratios as important KPIs to monitor trends, compare businesses to competitors, and measure progress towards goals. Explore the significance of each ratio, including cash flow to debt, net profit margin, gross margin ratio, quick ratio, accounts receivable turnover, inventory turnover ratio, and sales per