Financial Ratios of a Small Business - 1549 Words

Finance Information Imagine you are a small business owner. Determine the financial ratios that are important to the business. Compare your ratios with those that are important to a manager of a larger corporation. The ratios that would be most important to a business include: the current ratio, debt ratio and the return on assets. The current ratio is comparing the companys ability to pay its short term obligations. In general, the higher the number, the lower the risks that a firm will face from these challenges. This is important to a business, by helping executives to ensure that they have enough liquidity to pay creditors, employees and address other challenges. (Financial Ratios, 2011) The debt ratio is determining the total amounts of outstanding loans that a company owes to creditors. This number analyzes the firms ability to pay these obligations in comparison with its total assets. When this number is high, there are reduced risks of a potential default. For a business, this helps to determine if the company is taking on too much debt. (Financial Ratios, 2011) The return on assets is examining how effective the companys resources are being utilized to generate profits. For managers, this helps them to decide if a particular strategy is allowing the business to maximize its productivity. This is important, in determining if the firm will need to refocus their efforts on other areas in order to increase the total returns. (Financial Ratios, 2011)Show MoreRelatedSmall Business vs. Large Corporation: A Comparison of Financial Ratios1313 Words   |  5 Pages1.Small Business vs. Large Corporation: A Comparison of Financial Ratios Financial ratios are critical when it comes to the determination of not only the performance but also the financial health as well as stability of any given firm. In that regard, as a small business owner, I would utilize a number of ratios to find out how my business is really performing. 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