What are the key financial indicators to evaluate a business's health?

In my experience revenue growth is one of the first feel good metrics that will be showcased as a sign of success, however, it can also be a mis-leading vanity metric if it isn't coupled with a strong gross margin and the deeper analysis metrics such as churn %, life time value, % of recurring v non recurring revenue and customer concentration. Headline metrics can hide a whole range of different underlying stories, so dig deeper and never over-rely on one top line metric which can be masking unforeseen issues.

When assessing the health of a company from a more practical point of view we would have to look at the two most important factors first which are 1 profitability which is the main indicator investors look at whether it be longtern or short term as this will determine whether they will first gain a return on their investment. The second most important is cashflow, because profitability means very little if less money is entering the companys accounts than is leaving over a period as this could lead to many issues primarily with settling of short term liabilities. The other two I would look at revenue growth and operational effeciency. Thanks!

Revenue growth year on year and across industry can assist to identify profitability and performance at a glance. however, more deeper insight is needed to get a clearer perspective

A diversified revenue stream and a well-executed sales and marketing strategy contribute to sustainable revenue growth, enhancing the overall health of the business.

The four major aspects of financial health that should be assessed are liquidity, solvency, profitability, and operational efficiency. However, among the four, profitability may be the most accurate indicator of a company's health.

Profit is not a luxury in business - it is an absolute necessity. And it's often incorrect pricing that is costing business owners the profit in their business. The key to pricing your product or service so that you are profitable starts with understanding exactly how much it truly costs you to deliver that product/service.

Profit margin can be helpful in analyzing a company's financial health as it indicates how much a company actually earns as a percentage of total revenue. Low profit margin may indicate either low selling prices set by the organization or high costs beared by them whereas a high profit margin indicates high selling price associated with low costs. This may not always be the case as some organizations also have interest payments paid for a loan and high fixed costs which are present whether the prices are high or low.

In commercial finance we often view and analyse our profit margin into each products we offered to our consumers. This is one of the way to see the company is making money or just running charity. Having more profit margin will give the company more room to invest more on their products such as giving festive discounts. Hence monitoring profit margin would help sales team in decision making in helping growing company's sales. But beware, price increase might affect you profit margins. Then, we can have sales volumes to help to measure the company's actual growth along with the margin

A margem de lucro demonstra o percentual de lucro obtido em relação ao seu faturamento, alguns produtos e serviços se destacam pela excelente margem de lucro.

Gross profit is one of the key ratios when it comes to Income statement ratios. Its a clear indication of your operations. Higher the ratio,better the position. But a balance must be achieved to stay in the competition or else the turnover will be affected.

Return on Assets is surely an indicator to track alongwith ROCE (Return on Capital Employed) and ROE ( Returns on Equity). The way ROA shows how well the business is using the assets, ROCE shows how well the capital (own + loan) is used in the business. In an ideal situation, ROE should be greater than the ROE as the equity holders assumes more risk than the lenders. In order to achieve it the capital structure needs to be regularly monitored in alignment with the TOA.

Return on Assets tells us a lot about how a company utilizes its resources to generate profits. However, we shouldn't lose sight of the financial structure. A company might have an impressive ROA, but if a significant portion of its assets is funded by high-interest debt, this could pose a risk. Supplementing this ratio with others like ROE provides a more holistic view.

The core indicator of a business’s health is liquidity. Liquidity is ensured by holding cash and near cash instruments such as call deposits. Avoid holding any dead assets in your books.Need to invest in a property? Buy & hold through the holding co. not the core business. Ensure the company is always liquid to meet and match 100% liabilities. Remember ‘cash is king’.

Current Ratio is one of the aspects to assess the ability of a business to pay its current liability with its current Assets.

Some cash rich businesses may actually have a low current ratio because whilst they seem to hold cash their stock replacement values may creep up so fast that when they finally restock cash at hand will only restock less stock than stock sold.

Current ratio, is good indication of the short term financail position of the company, but one more ultra short term indicator is the liquid ratios, where the inventory is not considered for calculating the ratio. It shows the cash health of the organisation.

Set risk indicators & have a red alert to warn you when you are about to breach a debt-equity ratio of about 30-50%. Ensure debt does not surpass 30% of the shareholders’ funds at any one time. If you max out to 50% ensure the additional 20% is attributed to only short term debt repayable in less than an year.

Important ratio from the lenders perspective. Manage the capital structure in alignment with the TOA. Set policy for Target debt equity ratio, taking in to account the bank financial covenants. Achieve the target ratio by influx of capital by way of unsecured loans or ICDs from promotors or shareholders. Set a proper dividend policy for withdrawal of profits so that the Balance Sheet doesn't become equity heavy.

Setting KRIs is a good way to monitor and assess the debt-equity ratio of the business. The indicators can assist in detecting early signs of high/low debt to equity ratio.

Viewing the debt-to-equity ratio as a financial "equilibrium gauge" offers a distinctive perspective. This ratio resembles a delicate balancing act for a company — like a tightrope walker maintaining stability. Too much reliance on debt may signal over-leverage and financial strain, risking instability. On the other hand, too little debt might imply missed growth opportunities. Therefore, analyzing the debt-to-equity ratio becomes akin to assessing the business's prowess in maintaining a balanced financial structure, optimizing leverage for growth while ensuring stability on the financial tightrope.

Operating cash flow (OCF) is a crucial financial indicator for assessing a business's health. -It represents the cash generated or used by a company's core operating activities. -Positive OCF indicates a company can meet its operational needs without relying on external financing. -It reflects the efficiency of cash management and the ability to convert sales into cash. -Comparing OCF with net income unveils the quality of earnings. Consistent positive OCF is a positive signal, signaling financial stability and the ability to invest in growth or weather uncertainties.

É muito importante monitorar constantemente as tendências e mudanças no mercado para identificar oportunidades e ameaças. Isso pode envolver análise de concorrência, estudos de mercado e feedback dos clientes, mantendo uma gestão financeira eficiente é crucial. Isso inclui orçamento, controle de custos, gestão de caixa e avaliação constante do retorno sobre o investimento.

Cash flow is one key indicator to evaluate a business’s health. It includes movement of balance sheet items, and adjusting for non-cash items generally seen from the income statement. Simply put, operational cash flow means the cash inflow from receivables, less the cash outflow from payables.

Cash Flow from Operations is the heartbeat of financial health. It might be tempting to celebrate positive cash flow, but let's remember that this number doesn't tell the whole story. How is that cash being utilized? Is it being reinvested in growth or allocated to debt repayment? Evaluating how cash is generated and used is key to sound financial management.

Le flux de trésorerie d'exploitation, permet de mesurer la liquidité de l’entreprise, le flux de trésorerie mesure l’argent qu’une entreprise encaisse contre ce qu’elle dépense. Si l’argent s’accumule plus qu’elle n’est dépensée, le flux de trésorerie est positif. Dans le cas contraire, le flux de trésorerie est négatif. Les banques examinent le flux de trésorerie pour décider du montant du prêt qu’elles consentiront à une entreprise. Elles calculent le BAIIA (bénéfice avant intérêts, impôts et dotations aux amortissements) pour mesurer l’argent entrant.

All the mentioned indicators are perfectly fine. However, it's critical to note an additional factor, that is the "market price" of the share. External forces influencing prices can sometimes outweigh fundamental factors. Thus, while evaluating a company's financial health, movement of share prices must also be considered as one of the factors.

ROE is a great measure when using DuPont analysis to break it down as it gives as a snapshot for a company performance from different angles. The DuPont analysis allows for a deeper understanding of what drives a company's ROE by breaking down the return on equity (ROE) into its component parts. It helps evaluate the factors contributing to a company's profitability and identify areas for improvement. The DuPont analysis is expressed as follows: ROE=Net Profit Margin (Profitability) × Asset Turnover (efficiency) × Equity Multiplier (Leverage) As a financial analyst, I use DuPont analysis as a benchmarking tool to prioritize areas needing further analysis for improving and enhancing company performance.

Sales Pipeline! It's not mentioned enough, but the size of the sales pipeline for any business is a huge indicator of its health, which will drive a lot of the other important financial metrics. Whether a sales pipeline is growing, flatlining or declining it is the pre-cursor for what will happen in the upcoming 3-12+ months based on the sales cycle for that business. So it should be clearly defined, tracked and acted upon as a key metric for all businesses before the business becomes reactive from a lack of sales conversion.

The key financial indicators include: 1. Revenue Growth:Measures revenue increase over time. 2. Profit Margins:Assess efficiency and profitability. 3. Cash Flow:Indicates cash generated and used for operations, vital for stability. 4. Debt-to-Equity Ratio:Evaluates financial structure and risk based on debt and equity proportions. 5. Current & Quick Ratios:Measures short-term liquidity using assets to cover liabilities. 6. Return on Investment:Assesses investment profitability. 7. Asset Turnover:Reflects efficiency in asset use for revenue generation. 8. EBITDA:Highlights core profitability by excluding non-operating expenses. 9. Working Capital:Represents funds for daily operations by subtracting current liabilities from assets.

- Return on Investment (ROI): This measures how effectively a business uses its assets to generate profits. It compares the net profit of the business to its total assets to assess the overall profitability of the business. - Debt-to-Equity Ratio: This ratio compares a company's total debt to its shareholders' equity to measure leverage and financial risk. - EBITDA: This evaluates a business's operational efficiency, as it focuses on the business's ability to generate revenues before accounting considerations. - Market Share: This metric assesses a business's market share in its industry and compares it to its competitors to determine its position in the market.