Performance Ratios

The most common thought among business owners, consultants, investors and students is the ‘bottom line’. The proper word is of course ‘PROFIT’. In business, the single number one reason to operate is to make a profit. To start, there are three reasons to be in business:

  1. Make a profit,
  2. Provide long-term security for employees, and
  3. Satisfy the consumer.

Take note, making a profit is the primary purpose. Without profit, the company will fail to return money back to the investors via dividends and reduce risk for all parties involved. Risk reduction includes reducing debt, expanding operations and/or improving the product/service lines.

Performance Ratios

Performance ratios measure the ability of the company to achieve those three goals. Performance ratios consist of:

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