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.

Current Ratio


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)


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 [...]

Interest Coverage Ratio


The last of the leverage ratios isn’t really a pure leverage indicator but augments the debt ratio.  Debt requires the payment of interest and so an indicator of the ability to pay this interest is needed.  This is the interest coverage [...]

Gross Profit Margin


The difference between the sales price and the cost of the product or service rendered is known as gross profit margin in business.  It is traditionally the amount identified on the income statement or a tax return as the amount earned after cost [...]

Debt to Equity Ratio


Another leverage ratio used to evaluate the financial integrity of a business is the debt to equity ratio.   It is strictly a bottom half balance sheet ratio.   Its result explains the relationship of volume of debt and corresponding equity to [...]

Net Profit Margin


The net profit margin reflects the profitability of the company as a percentage of net sales.   It is one of the performance ratios used in evaluating business.   Interestingly, some consider it the most important ratio.   These users of [...]

Return on Assets


One of the performance ratios used in business identifies the overall ability of management to efficiently utilize resources to generate a profit.   Corporate resources include human knowledge/skills and the balance sheet assets of the [...]

Accounts Payable Turnover Rate (Ratio)


The accounts payable turnover rate is a business activity ratio measuring the frequency of the company’s ability to pay its vendors and suppliers.  The numerical value is customarily reported as an annual value.  The higher the number, the [...]

Inventory Turnover Rate


One of the many ratios used in business, the inventory turnover rate is often misunderstood, miscalculated and misused.  The traditional business course in academia explains that ideally the inventory turnover ratio (rate) is the highest number [...]

Fixed Assets To Debt Relationship


Every business owner, especially young entrepreneurs, must understand how long-term debt  is used to finance the purchase of fixed assets . It is a basic principle especially for start-ups. There is a relationship that exists between the two. If [...]
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