Recent Articles

Report Analysis – How to Read the Statements

Learn how to read and understand the basic financial reports used by all businesses. From the balance sheet to the profit and loss statement, understand why the reports are organized in this fashion. Find out how a cash flow statement works and the value it brings to the reader of this report. Finally, understand how the equity section and the reports about ownership are used for a small business.

Operating Profit Margin

10/15/2017

Operating profit margin refers to the value earned as a percentage of net sales.   The operating profit is often referred to as earnings before interest, taxes, depreciation and amortization, (EBITDA).   This is a misleading reference as [...]

Total Assets Turnover Rate

10/07/2017

Within the group of activity ratios, the total assets turnover rate is the broadest in scope.   Similar to other activity ratios, it utilizes net sales as the numerator.  However the denominator doesn’t focus in on a single balance sheet [...]

Debt Ratio

09/30/2017

Debt is a natural part of business.   The most volume (number of transactions) of debt occurs with the simple purchase of materials (inventory) or supplies on account.   Every business buys on account whether it is a traditional vendor account [...]

Fixed Asset Turnover Rate

09/24/2017

The fixed asset turnover rate is another activity ratio whereby an income statement financial characteristic is compared to a balance sheet asset section.    In this case, comparing adjusted sales against historical cost of fixed assets.   This [...]

Working Capital Turnover

09/23/2017

The activity ratios measure performance of a current asset on the balance sheet against a corresponding area of the income statement.  The working capital turnover is the most encompassing of all the activity ratios; in effect, it is the most [...]

Cash Ratio

09/04/2017

One of the liquidity ratios used in business is the cash ratio.  It is a much more effective tool for small business than the traditional current or quick ratio.  Although the cash ratio is more difficult to manipulate in small business, most [...]

Receivables Turnover Ratio

07/09/2017

One of the activity ratios in business is the receivables turnover ratio or rate.   This ratio measures the frequency of collecting the entire balance of accounts receivable during a standard accounting year.   The ideal turns rate is twelve [...]

Net Profit

05/14/2017

No other business term is so misunderstood, misstated, misleading or deceiving as the words ‘net profit’.   Accounting defines net profit as the amount earned after all associated costs and expenses are subtracted from the associated [...]

Current Ratio

02/22/2017

The current ratio is an inappropriate relationship to use or rely on in small business.   The ratio is best suited for large publicly traded organizations.   This article explains the basic formula for the current ratio, how to identify the ratio [...]

Business Ratios (Introduction)

02/15/2017

How does a business investor compare a small railroad line serving only a few states to a large railroad like Union Pacific? Answer: Ratios! Ratios are used in business to compare companies of different sizes within the same industry. The goal is to [...]
1 2 3 4