There are key business ratios that you should use to measure your strengths, weaknesses, and overall success. Using these ratios periodically can help identify and correct weaknesses while building upon your company’s strengths. To get you started, here are two of the most important questions to answers/ratios to use to do so:
1. Is the company earning a profit? The gross profit margin equals gross profit divided by revenue. This will give you a measure of the gross profit percentage per dollar of sales.
2. Is the company solvent? The current ratio equals the current assets divided by current liabilities. This will give you a measure of the company’s ability to pay short term debts. A current ratio of assets to liabilities of less than 2 to 1 is frequently considered unsatisfactory, and will show you where your business needs to improve.
Stephen C. Erickson
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