Total Management by Ratios

The balance sheet and the income statement are essential, but they are only the starting point for successful financial management. The real success lies in applying techniques to analyze these statements and figure out the real reason for good or a dismal performance. Ratio analysis is one of those old and time tested technique of “Financial Statement Analysis”. Ratio analysis enables the business owner/manager to spot trends in a business and to compare its financial performance and business condition with the average performance of similar businesses in the same industry. To do this, the analysts normally compare the ratios with the average of businesses similar to the one being compared and compare your own ratios for several successive years, watching especially for any unfavorable trends that may be starting. Ratio analysis may provide the all-important early warning indications that allow you to solve your business problems before your business is destroyed by them.