Using Statistics for Business Analysis
c) Performance Ratios
There are a number of ratios that can be used to analyze how well (or badly) your business performs in certain areas. For example, lets look at the Current Ratio:
CURRENT RATIO (is) CURRENT ASSETS (divided by) CURRENT LIABILITIES
- CURRENT ASSETS are: debtors, stock, cash
- CURRENT LIABILITIES are: creditors, overdraft, loan repayments for 12 months (see The Balance Sheet for more information on assets and liabilities)
Say, current assets = £300k and current liabilities = £200k, the current ratio would be 1.5. as 300 divided by 200 is 1.5. A business should aim for a figure ideally between 1.5 and 2.0.
A figure that falls significantly below this range suggests that the business is in danger of running out of cash, whereas a figure significantly higher than this range suggests that money is tied up in unproductive assets.
For a business to be successful, it is important that you understand which statistics reflect good and bad performance so that corrective action can be taken immediately. For further details highlighting the main ratios used to measure business performance, visit the following page: Credit Reports & Analysis. These ratios include ‘Debt to Equity’, ‘Profit to Sales’, ‘Return on Capital Employed’, and more.
Article Index
- Successful Small Business Statistics: An Introduction
- Using Statistics in Business - Management Accounts
- Analyzing Statistics in Company Reports
- Using Statistics for Business Analysis
- Successful Small Business Statistics: An Introduction
- Successful Small Business Statistics: An Introduction
- Successful Small Business Statistics: An Introduction
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