Financial Performance measures in a traditional business system Measuring the financial ability is a very important approach for any business entity in order to enhance its overall performance, profits and to maintain a financial stability. Financial performance measures are done in order to depict the company’s overall performance. This is done by performing some simple mathematical calculations. The most common way of measuring one’s financial measures is by calculating the financial ratios. These financial ratios can be used to compare the financial abilities of different companies. Thus these ratios are kind of scores based on which the companies are rated. These ratios can also help the company management in creating business plans and creating presentations for their customers and investors. Some of the common financial ratios used as financial measures are: The liquidity Ratios: These ratios are used to find out “how much ready cash or near cash a company has?” Some of the liquidity ratios are 1) Current ratio 2) Quick ratio The Profitability Ratios: These ratios measure the return on investment or the profitability. The most common profitability ratios are 1) Profit ratio 2) Earning power 3) Return on investment of Assets 4) Return on common equity. Asset Ratios: These ratios are used to measure the asset management ability. Some of the common asset ratios are 1) Inventory turnover 2) Days of receivable outstanding 3) revenue to assets. Debt Ratios: These ratios are used to find out the amount of debt the company has with respect to the revenue the company is generating. Some of the common debt ratios are 1) Earnings per share 2) Price earnings Security Ratios: These measures are useful particularly to the shareholders and owners. Some of the common security ratios used are 1) Earnings per share 2) Price earnings 3) Book value 4) Payout 5) Yield Demerits of the Financial Ratios
These financial ratios represent only the present condition of the...
References: 1) http://smallbusiness.chron.com/benefits-lean-accounting-lean-manufacturing-company-4924.html
2) Applies Economic Analysis for Technologists, Engineers, and Managers By Michael S. Bowman
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