7 key financial ratios every startup should know

6You should have a good financial knowledge to succeed with a startup even though you have wonderful products lined up, good SEO, fantastic sales, efficient marketing model etc. You cannot just undermine the knowledge of finance while running a business. Along with this knowledge on financial rations is essential for establishing a successful company. This knowledge should rank you up as a smart entrepreneur and investor as you will have sufficient vision for your future company. Below are seven key financial ratios you need to know.

  1. Ratio for working capital

This particular ratio points at the company’s ability to bear its debts using sufficient assets. This ratio is of current liabilities.

  1. Debt and equity ratio

This ratio calculates the organization’s entire financial leverage. People measure this using the entire liabilities. It can not only be applied to financial statements that are personal, but also those of corporate ones. The company’s total debt and its total equity ratio should not more than one and a half. Anything more than this should be avoided.

  1. Margin ratio of gross profit

This ratio is the figure that shows the overall health of the company after a certain cost, namely COGS, is cut off. The ratio shows how much money is profited from any amount earned.

  1. Margin ratio for net profit

The company’s earning depends a lot on the sales. The margin ratio for net profit shows the figure of company’s net profit for each dollar it earns in sales.

  1. Turnover ratio

This ratio simply measures the firm’s efficiency in using its assets. You need to divide the number of sales by the receivable accounts to get the ratio.

  1. Investment ratio payback

This particular ratio would measure the investment efficiency.

  1. Equity ratio payback

This ratio calculates the company’s profitability with the resources and money invested by the shareholders.

These are seven main financial ratios all startups should know.

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