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June 4, 2021
We know that the impact of Covid-19 on businesses is and continues to encompass dimensions ranging from production issues to logistics and sales. How does the pandemic impact companies' financial statements?
If you have a business, you should consider that there are three main financial reports that help phone number in philippines companies make decisions:
Income statement: Shows the business's profits and profitability.
Balance sheet: A snapshot of all the company's assets, liabilities and equity at a given date.
Cash flow: Cash that the company has at a given time to meet its obligations.
Once these concepts have been clarified, it is important to mention Ratios or Financial Indicators that help evaluate the financial health of companies. These indicators must consider the changing and volatile environment of the entrepreneurial ecosystem and its impact on the finances of their businesses.
There are several categories of financial ratios. But we will consider four categories and give an example of each.
1. Liquidity ratio: Measures the company's ability to respond to short-term commitments.
Suggested indicator: current ratio. It tells us what proportion of short-term debt is covered by assets, that is, by the assets we have as a company. To calculate this indicator, we recommend looking at your balance sheet, especially the current asset items (assets that become money in less than 1 year, for example: merchandise, cash, accounts receivable) and current liabilities (payment obligations with a repayment period of less than 1 year), and using the following formula:
Current ratio: Current assets/Current liabilities
2. Debt ratio: Proportion between external or third-party financing that the company has and its own resources.
Suggested Debt to Equity Indicator: Measures the relationship between total liabilities (short- and long-term debts) and the capital contributed by shareholders. To calculate, I invite you to review your balance sheet again.
Debt to equity: Total liabilities/Total equity.
3. Activity ratio: Measures the intensity with which the company uses its assets (its goods) to generate sales.
Suggested inventory turnover indicator: Indicates how many times we sell our products or merchandise.
Inventory Turnover: Cost of sales/Average inventory.
4. Profitability ratio: Measures the company's situation with respect to its ability to generate profits.
Suggested sales margin indicator: Represents the percentage that remains for the business owner of the total sales.
Sales Margin: Net profit/Net sales x 100.
It is important to calculate all these indicators in times of pandemic. Knowing how much cash we have to pay off debts, how much we need to pay off debts, knowing if we have the capacity to borrow, and knowing how much is left in our pockets after making a sale.
Each company has a different reality and industry. Therefore, ideal values will be subjective. Don't be alarmed if you calculate and get very high or very low values. Use this information to make decisions and answer questions: How long can the company sustain itself under these circumstances?
If you need any guidance regarding the financial health of your organization, remember that we have the Mentoring Program available so that a mentor can guide and accompany you in this process.