What key financial management indicators must business owners clearly understand?

Financial management is an activity that challenges the mind and capacity of leaders. Through this activity, businesses can concretize the relationship between the organization’s debts and assets. Applying financial formulas drawn from economists will help control cash flow more effectively. However, this problem requires business owners and leaders to read and understand the meaning of each indicator. Therefore, let’s join Apexcorp consultants to learn about key financial management indicators that business owners must grasp firmly.
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Symbols often appear in financial articles 

EBIT: Earnings before interest and taxes, also known as net profit
EBT: Profit before taxes
TR: Total revenue
Q: Total output 
By product: P is the price, V is the variable cost
Rate calculated based on common criteria: ROI, ROA, ROE, ROS
Ratio per share: P/E, DPS, EPS
Symbols related to leverage: DOL, DY

Key groups of corporate financial management indicators 
Solvency index

Accounting – Finance has two debts: long-term debt and short-term debt. In particular, the liquidity ratio represents the ability of a business to pay short-term debts. And is calculated according to the formula: Liquidity ratio = short-term assets / short-term liabilities. During operations, leaders always need to be updated on the immediate payment ratio to decide whether to borrow from a bank or not, or whether to expand production or not. 

Financial structure index 

Turnover ratios commonly used in financial structures are asset turnover, debt turnover and inventory. These ratios represent the company’s ability to pay interest. They are determined by the formula: revenue/corresponding assets. The results from this calculation show the level of efficiency in resource use, reflecting management and spending capacity. Thanks to that, businesses take steps to improve and enhance the financial management skills of leaders and managers to optimize these indicators.

Market index 

In addition to ROE, investors need to pay attention to DPS and EPS ratios. In particular, EPS shows the profit from stocks, calculated by taking net profit of common stocks / number of common shares. DPS calculates dividends from individual investors. In fact, EPS is difficult to be accurate because it changes frequently and is affected by many factors. However, if the calculation method is applied correctly, it will bring high accuracy. In addition, ROI should also be paid attention to when helping business owners and management evaluate and monitor cash flow from different investment sources when managing company finances.

The ratio represents profitability

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This is the financial ratio that receives the most attention. When showing business efficiency and is a decisive number for investors. Partner cooperates with the company. Profitability ratio is the result of the problem: Profit/revenue. An answer greater than 0 means the business is profitable and this ratio is proportional to the profits earned. Besides, the ROE ratio represents the profit rate relative to the asset level. Shows how much interest the investor owns in the business. At the same time, ROA is the profit margin of the entire company and represents the benefits brought to shareholders. Through profitability ratios, leaders can clearly understand the cash flow into the business.

Summary 

Ratios and formulas are useful tools for administrators to manage company finances effectively and optimally. However, this process requires administrators to have deep professional knowledge, flexible financial thinking and constantly update market news. Apexcorp is always ready to be a companion to businesses in consulting and training financial management skills for business owners, leaders, CEOs, and managers to achieve the common goals of the organization.
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Hotline: 0903 25 55 25
Email: info@apex.edu.vn
Website: apex.edu.vn

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