Financial ratios can help to make sense of the overwhelming amount of informations. A CFO has to understand what the financial keys are detemining and what can the next action plan in accordance to same. Hence undoubtedly financial ratios analysis is one of the most important arts that an CFO should practice timely. Below 5 keys financial ratios that CFO should review timely:
- Return on Equity (ROE):
Return on Equity = Net Income / Average Stockholder Equity
-> It tells you how good a company is at rewarding its shareholders for theirinvestment and CFO has to be taken care on this part.
2. Debt to Equity Ratio:
Debt Equity Ratio: Total Liabilities / Total Shareholders funds
-> It measures the relationship between the amount of capital that has been borrowed and the amount of capital contributed by shareholders (i.e. equity). Generally speaking, if a firm's debt-to-equity ratio increases, it becomes more risky because if it becomes unable to meet its debt obligations, hence this ratio has to be taken care properly , and take action for immediate and long term remedial causes and safe.
3. Debt Collection Period :
Debt Collection Period :Debtors / Sales x 365 days
-> It helps to know the collection period of time , timely and proper collection of debt is one the major role of CFO which can lead the business.
4. Credit Payable Period :
Creditors / Sales x 365 days
-> It helps to know the credit period time for credit payment , timely payment to creditors is one of major KPI of company.
5. Current Ratio:
Current Ratio: Current Assets / Current Liabilities
-> It measures co. abilities to pay the current liabilities with short term assets
Timely preparation of company reports , monthly , quarterly , yearly , CFO of a company should not miss these few analysis and take immediate plans and action to minimize the risk , maximize the returns to investors.
