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Accounting
and Financial Fundamentals for Nonfinancial Executives by Robert
Rachlin, Allen Sweeny, David K. Ballast
Prepared by two financial epxerts
who posses a special talent for demystifying the accounting process and
the financial fundamentals, this nuts-and-bolts primer is easy to read,
thorough yet succinct, and focused on showing you how to actually apply
financial data in the day-to-day operation of a company.
Financial
Statements: A Step-By-Step Guide to Understanding and Creating Financial
Reports
by
Thomas R. Ittelson
Finally, a resourceful and unique
primer on financial statements that uses a creative and different approach
to explain every kind of financial report a small business owner or manager
needs to succeed. Through an unique visual approach, this book leads users
to clear understanding of how business scores are kept and how to interpret
the results.From balance sheets, cash flow statements and income statements,
learn how to understand the basic elements that will pave the way to achieving
financial success.
The
Great Game of Business
by
JACK STACK
"It's amazing what you can come
up with when you have no money, zero outside resources, and 119 people
all depending on you for their..."
Open-Book
Management:: The Coming Business Revolution
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extraordinary book you will find yourself jumping up and down with
excitement. The companies described in this book are decades ahead of the
reengineers and you don't need to be a Bill Gates or a Jack Welch to put
their ideas into practice today. |
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RATIO
ANALYSIS
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Accountants
and economists have developed many business ratios over the years to assist
them in evaluating the financial health of business. Ratio analysis may
help you put things in proper business perspective. Ratios are commonly
used to measure a performance from one year to the next year and will help
you to compare various aspects of business (profitability, how well business
is managed, sales to inventory etc).
When
your ratios differ from those of similar businesses or change unexpectedly
from one period to the next, they can be used as early-warning signals. |
| Find Ratios:
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CURRENT
RATIO
Current ( or working capital
) ratio is based on your working capital. It measures how well the business
is able to pay its current debts using only current assets. This ratio
is calculated by dividing current assets by current liabilities. By rule
it should be 2:1, that means you have $2 in current assets for every dollar
of current liabilities. The higher it is, the better the indication, but
management and quality of assets must be considered. However, as with any
other ratio, it's important to compare it to those of previous years and
to those of similar businesses ( could be a sign of trouble if it's declining). |
Total
Current Assets
Total
Current Liabilities
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QUICK
RATIO
Quick Ratio or Acid Test Ratio,
measures how quickly your company can raise cash by selling off its most
liquid assets to meet its liabilities. To calculate, subtract inventories
from current assets (cash, accounts receivable or any other quick assets
) and divide by current liabilities. |
Cash+Accounts
Receivable
(+Any
Other Quick Assets)
Current
Liabilities
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OPERATING
EXPENSE RATIO
This ratio
measures each operating expense by net sales. From the resulting picture,
management can evaluate internal economic efficiency. |
ANY
OPERATING EXPENSE X 100
NET
SALES
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SALES
TO INVENTORY RATIO
Sales to Inventory ratio measures
relationship between inventory and sales to help determine inventory turnover.
It is important in determing the investment to be made in invevtory or
if business want increase sales while inventory is reduced. |
NET
SALES
INVENTORY
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NET PROFITS
TO SALES RATIO
Net profit to Sales ratio is
a very good profit margin measurement to help determine management's ability
to control operating expenses, pay taxes and result in good profit margin
on sales. |
NET
PROFITS
SALES
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SALES
TO NET WORTH RATIO
Sales to Net Worth Ratio measures
volume of sales in relation to the business's investment. The best is if
you keep a balance, because high sales to worth puts pressure on the investment
and loss of sales underutilizing capital. |
SALES
NET WORTH
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PROFIT
TO NET WORTH RATIO
Profit to Net Worth Ratio (or
Net Income to Total Equity Ratio) This ratio is almost always given as
a percentage and it is a measurement of the owner's rate of return on investment. |
PROFIT
NET WORTH
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LIABILITIES
TO NET WORTH RATIO
Liabilities to Net Worth Ratio
( or Total Debth to Total Equity Ratio ) This ratio measures the amount
invested in the business by creditors with that invested by the owner or
owners. If ratio is high that indicate the business is extending its debt
beyond its ability to repay. The lower the ratio, the greater the cushion
against losses to creditors, but to low ratio may indicate that the owner
is too conservative and is not letting the business realize its potential |
LIABILITIES
NET WORTH
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AGE
OF RECEIVABLES RATIO
This ratio
shows the efficiency of business's collection capatibilities. For
example if firm's payment terms are 30 days, and ratio is 55, that
long period may show a business's credit policies and collection procedures
need attention. However, ratio must be compared with previous years and
to industry averages in similar sectors. |
Accounts
Receivable x365
SALES
/ REVENUE
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AGE
OF INVENTORY RATIO
This ratio is a measurement
of the spees with which merchandise moves through the business. For example
if your inventory remains in stock for 59 days, that means your inventory
turns over six times per year ( 365 divided by 59 = 6.19 ). These ratios
are of value only when compared to similar industry, as well, it is important
to compare with previous years, because sharp increases may indicate unsaleable
goods or buildup of obsolete. |
Inventory
x365
Cost of
Goods Sold
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