There are a number of financial ratios that business managers can use to keep track of their company's performance. These financial ratios are like a rear-view mirror of how the company has fared, and they are the basis on which the manager plans for the future of the company, understanding what it can and cannot afford. Some of the most important indicators in company management are:

PROFITABILITY INDICATORS
Profitability indicators are the simplest of all financial indicators, but also the most important in the daily life of a company manager, because they are the simplest indicator of business success or failure:

Basically, it indicates how profitable the company is. A good amount of profit depends on the specific industry in which the company operates. These are areas where companies operate with very high net profitability (for example, mobile operators) and very low (wholesale companies). We have summarized the average profitability indicators of various companies in the industry in the following table.

Gross profitability indicates how much value is added in the process of producing or providing services. Again, a good or bad score basically depends on the industry in which the business operates

The amount of return on equity indicates how much, in percentage terms, the company is able to earn on the capital invested by the owners. This return should be at least 10%, but preferably 15-20%

LIQUIDITY INDICATORS
Liquidity ratios are indicators of a company's ability to meet its short-term financial obligations.

The amount of liquidity (or working capital ratio) indicates whether the company has sufficient assets to cover short-term liabilities. Current assets are those assets that can be easily converted into cash within a maximum of 1 year, while short-term liabilities are all claims that the business has to pay within the next year. A good amount of liquidity for the company is in the amount of 1.2-2. As with profitability indicators, each industry may have its own norm and therefore it is important to compare the calculation of your company's indicators with similar companies. For example, in the food retail industry, the liquidity ratio is almost always below 1.

By itself, the EBTIDA indicator may not tell you much about liquidity, but rather indicates how much cash the company generates, ignoring how the company is financed (how much it has borrowed). This indicator is often used by credit institutions when calculating how much loan amount can be granted to the company (usually no more than 3-4x EBITDA amount), as well as when calculating the value of the company, for example in business sales transactions.

INDICATORS OF THE AMOUNT OF LIABILITIES
These ratios measure the extent of the company's liabilities and are an important measure to ensure that the business does not expose itself to unnecessary risk by taking on too much liability. Also, these indicators are used by financiers, evaluating the company's ability to attract additional money for business .

The amount of equity ratio indicates how much of the company's assets are financed by the owners' funds. The closer this indicator is to 100%, the more the company finances with equity funds.

This ratio indicates how much the company relies on liabilities for its financing. Again, it is important to compare this indicator with the average size among companies in your field. A low amount of the indicator may indicate that the company is not using the growth opportunities that would be provided by additional credit financing. On the other hand, a high indicator (compared to the industry average) may indicate that the business is exposed to additional risk due to excessive liabilities. Typically, a good debt-to-equity ratio is in the 1-3 range.

ASSETS TURNOVER RATIOS
Asset turnover ratios indicate how quickly the company is paid by its customers on average, how quickly it pays its post-paid invoices and how smoothly the inventory turnover is.

Each industry has different principles on how long it is customary to allow customers to pay invoices for goods or services sold. However, if a company's accounts receivable days are above the industry average, this potentially indicates poor customer payment discipline or more favorable customer terms than competitors offer

On the other hand, creditor days indicate how quickly the company itself pays its post-paid invoices. Again, each industry may have its own principles, but it is also worth following how this indicator changes for the company over time. An increasing number of accounts payable days indicates to both financiers and other cooperation partners that the company may have difficulties with working capital and cannot pay its invoices on time.

Alternatively and more accurately, it would be better to count inventory turnover days not against the turnover of the company, but against the cost of purchased goods. A high inventory turnover rate (especially relative to the industry average) indicates that the company does not need to hold large inventories (and therefore invest in working capital) to ensure sales.

WHAT'S NEXT
A good first step would be to think about what the main KPI (key performance indicator) is for your business. For example, in the case of the financial company Capitalia, it is the amount of monthly financing issued, the proportion of doubtful loans, as well as the net profitability. On the other hand, the speed of inventory turnover would be important for trading companies, but manufacturers pay great attention to gross profitability. It is worth calculating your main financial indicators yourself or asking an accountant so that you can follow how the company is doing once a month. Also, it is useful to compare these indicators with the results of your competitors using Lursoft data or our table of industry averages. We have collected sample formulas for calculating the indicators mentioned in the article in this example.