In the final stage of my Financial Awareness & Strategy program, businesspeople learn how to use financial ratios to identify opportunities for improvement…and prioritize the opportunities on the basis of which can produce the greatest result with the least effort.
Here are some examples of how financial ratios can help you to identify opportunities for improvement.
Examples
I used the ratio: (“/“ means divided by)
Revenues/Direct Labor Dollar
to track productivity of the field operation in a toxic waste disposal company. When I saw a precipitous drop in the ratio, I asked the owner whether he’d added another crew. He said, “Yes, how did you know?” When I told him about the ratio he said “Our overtime cost made it more effective to add an new crew and it helped avoid burnout of my existing crews.
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Growth in the average days sales outstanding:
Accounts receivable/Average day’s sales
portends future cash flow problems. It could also be an indication that customers are not as satisfied with their experience as they once were. Discovering the reason for this trend early can dramatically reduce the likelihood of major problems in future months.
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A prospective client showed me his balance sheet and asked what I could surmise from it. I said “Well, for one thing, you’re experiencing cash flow problems.” He asked how I knew that and I told him that his current ratio:
Current Assets/Current Liabilities
was 1 to 1, indicating that if his customers were slow in paying he’d have trouble paying his bills. He replied “That’s exactly what I’m experiencing.”
Financial Awareness & Strategy
Using financial ratios to guide your organization’s decisions, helps your staff:
- Identify opportunities for improvement more quickly.
- Prioritize opportunities on which which will provide the greatest benefit with the least effort.
- Improve your profits, cash flow, bankability and the value of your business.
- Develop an ownership mindset which assures you a guaranteed buyer for your business when you’re ready to leave.
- Assure continued employment and financial security after you leave.
This program accomplishes in just 16 to18 hours what it would take a whole semester to accomplish at your local college or university. Call for more details at 314-707-3771.
Resources
Making the EXCEPTIONAL Normal program helps you identify and nurture emerging leaders who elevate all around them to higher levels of performance and greater job enjoyment.
Financial Awareness & Strategy program where employees learn to identify opportunities to improve financial results and prioritize these opportunities on the basis of which produces the greatest impact with the least effort. Greater financial awareness = Better decisions.
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