Ask any business owner why they are in business, and at least part of their answer is bound to include the following three words – to make money. So, how does a business know if it is making money? Do they wait until their annual visit to the accountant at the end of financial year to find out? Well, it would be a bit late then to discover the answer is no…
That is why it is wise to review business performance on a regular basis. One good way to do this is to use ‘Ratio Analysis’. Over the next two months, I will explain and examine the different ratios that businesses can use. For my first month of Ratios, I will turn my attention to two ratios – Gross Profit Ratio and Net Profit Ratio – that can be computed month to month or quarterly to track a business’s performance and health. (more…)