What are financial ratios and how do they serve as benchmarks?

What are financial ratios and how do they serve as benchmarks?

Financial ratios are quantitative measures used to assess a company's performance and financial health. They serve as benchmarks by allowing comparisons with industry standards or competitors.

Can you give me examples of key financial ratios?

Sure! Some key financial ratios include the current ratio, debt-to-equity ratio, return on equity, and profit margin.

How do I calculate the current ratio?

The current ratio is calculated by dividing a company's current assets by its current liabilities. The formula is: Current Ratio = Current Assets / Current Liabilities.

What is a good current ratio to aim for?

A good current ratio is typically around 1.5 to 2.0, indicating that the company has enough assets to cover its liabilities.

How can I use these ratios to improve my business?

You can use these ratios to identify areas of strength and weakness in your business, set financial goals, and make informed decisions to improve overall performance.