Understanding The Concepts Small Business

FINANCIAL CONCEPTS Financial concepts Financial Ratio Financial ratios help in evaluating the performance of the organization, there are several ratios which are used by the organizations which include the profitability ratios, solvency ratio, activity utilization ratios, operating ratios and liquidity ratios. The small business owners have a strong focus on the liquidity ratios, profitability ratios and solvency ratios. Profitability ratios show how profitably the business is running. It helps in knowing the profits of the company, it includes net margin ratio, gross margin ratio, profit margin on sales, Return on assets, return on equity etc. these ratios helps to evaluate the profitability of the business and make the decision of investing their funds accordingly. Liquidity ratio These ratios are computed to judge the short term liquidity of the business. Two most important liquidity ratios are current ratio and quick ratio. These ratios determine the ability of firm to meets its current liabilities out of its current/quick assets. Solvency ratios are helpful in analyzing the long term solvency position of the company such as Debt equity ratio etc. solvency ratios help in determining the ability of the business to meet its short term as well as long term liabilities. For the