Calculating Financial Ratios Business is a numbers game, and survival in the marketplace depends on having the right numbers in black ink. It is necessary to compare your venture to other businesses in your industry by calculating key financial ratios.
Review the financial ratios in Figure 8.10. Go to BizStats by BizMiner and select Financial Benchmark Reports Select Sole Proprietorship or Corporation or S Corp Select your Industry (for example, Retail food & beverage), then you will see various business statistics and financial ratios.
Look at the Industry Financial Ratios for your industry at the bottom.
Recap this specific information in a 1-2 page paper including the industry you chose.
Financial Ratios Ratio Name Balance Sheet Ratios Current Quick Income Statement Ratios Gross margin Net margin overall Efficiency Ratios Sales-to-asse specific Efficiency Ratios Small Business figure 8.10 How to Calculate What It Means in Dollars and cents Current Assets Measures solvency, the number of dollars in current assets for every S1 in current Nabilities nt Liabilities Example: A current ratio of 1.76 means thit for every $1 of current Babilities the finm has $1.76 n current assets with which to it. cash t Accounts Receivable Measures aquiditys the number of dollars in cash and accounts urrent Liabilities receivable for each $1 maurrent Wabilties Example. A quick ratio of 1,14 means that for every S1 of current iabilities, the firm has $1.14 in cash and accounts receivable with which Measures iguidity more strictly the number of dolars in cash for every current urrent Liabilties Example: A cash ratio of 0.17 means that for every s1 of current iabilities the firm has $0.17 in cash with which to pay it, Total Labates Measures financial risk the number of dollars of debt owed for every $1 in net worth Example, Adabt no-worthratio of 1.05 means that for every of net worth the owners have invested, the firms owes $1.06 of debt to its dreditors. Measures profitability at the gross proft the number of dow lars of gross margin produced for every sales A groas margin ratio of 34.4% means that for eveny $1 of sains, the firm produces 34 4 cents at gross margn Ne Profit before tax Measures profitab at the net profit level the number of dolars of net profit produced for every $1 of sales E A net margin ratio that for very s the firm produces 29 cents of net margin Measures the efficiency of total assets in generanng sales, the number of dollars in es produced for every $1 mvestnd in total Euany e n sales to assets ratio of 2.36 means tnat tor every dollar invested in total assets, the firm generatas S2.3s in Measures the offioenoy of total assets in generating net prom me number of dollars in net profin produced forevery si nvmima in evamain Areturn on assets ratio of means tha for every$1 at det the firm it generating 7 cenrs in net profit Meas urea in efficiency of net wprm ganera ng net prof tne atio of livery sliivesredinnet we Th the m generating 1 centa Financial Ratios Ratio Name Balance Sheet Ratios Current Quick Income Statement Ratios Gross margin Net margin overall Efficiency Ratios Sales-to-asse specific Efficiency Ratios Small Business figure 8.10 How to Calculate What It Means in Dollars and cents Current Assets Measures solvency, the number of dollars in current assets for every S1 in current Nabilities nt Liabilities Example: A current ratio of 1.76 means thit for every $1 of current Babilities the finm has $1.76 n current assets with which to it. cash t Accounts Receivable Measures aquiditys the number of dollars in cash and accounts urrent Liabilities receivable for each $1 maurrent Wabilties Example. A quick ratio of 1,14 means that for every S1 of current iabilities, the firm has $1.14 in cash and accounts receivable with which Measures iguidity more strictly the number of dolars in cash for every current urrent Liabilties Example: A cash ratio of 0.17 means that for every s1 of current iabilities the firm has $0.17 in cash with which to pay it, Total Labates Measures financial risk the number of dollars of debt owed for every $1 in net worth Example, Adabt no-worthratio of 1.05 means that for every of net worth the owners have invested, the firms owes $1.06 of debt to its dreditors. Measures profitability at the gross proft the number of dow lars of gross margin produced for every sales A groas margin ratio of 34.4% means that for eveny $1 of sains, the firm produces 34 4 cents at gross margn Ne Profit before tax Measures profitab at the net profit level the number of dolars of net profit produced for every $1 of sales E A net margin ratio that for very s the firm produces 29 cents of net margin Measures the efficiency of total assets in generanng sales, the number of dollars in es produced for every $1 mvestnd in total Euany e n sales to assets ratio of 2.36 means tnat tor every dollar invested in total assets, the firm generatas S2.3s in Measures the offioenoy of total assets in generating net prom me number of dollars in net profin produced forevery si nvmima in evamain Areturn on assets ratio of means tha for every$1 at det the firm it generating 7 cenrs in net profit Meas urea in efficiency of net wprm ganera ng net prof tne atio of livery sliivesredinnet we Th the m generating 1 centa
