You are likely also a creditor, customer, or employee of someone else. Therefore, it’s good if your potential partners are transparent today. What kind of information can you quickly obtain from a competitor’s or partner’s report?
Remember, you can say anything, but numbers don’t lie!
Before analysis: When comparing data, it’s important to follow trends – any sharp changes upward or downward require explanation and additional checks.
What to analyze?
1. **Sales revenue**: What has been its trend in recent years? How do assets and employee numbers behave compared to sales revenue?
2. **Equity**: The smaller this number, the riskier the company is. It’s good if equity makes up at least 30% of total assets.
3. **Solvency**: How many times do current assets exceed short-term liabilities? It’s good if current assets exceed liabilities by at least 1.6 times; for retail businesses, even 1.0 is acceptable.
4. **Debt ratio**: Compare borrowed funds to assets. It’s not good if this indicator exceeds 0.8.
5. **Sales revenue vs operating profit**: Comparing these helps understand how much profit the company earns from its core activities and how effective it is. This number varies by industry; for service companies, below 25% is considered poor performance.
6. **Net profit**: This shows how well costs are controlled and indicates the company's financial health; a figure of at least 15% is considered good.
7. **Return on equity (ROE)**: Compare net profit to equity; it shows how much profit shareholders’ invested money has generated—ideally over 10%.
8. **Cash balance changes**: If this steadily increases, it’s a good indicator.
Are you familiar with these indicators?
If all this information is new to you, definitely start your financial analysis today for your company. Ask your accountant to prepare quarterly overviews of your business activities as a starting point. Also, check your partners’ financial health yourself—practice analysis skills and secure your operations. Be an entrepreneur—manage your company’s finances with data, not just gut feeling!
