How to determine the financial health of a company?

Being aware of how your business is doing financially is essential to make decisions that positively change its future. If you don’t know how to do it, you’ve come to the right place. We will show you how to determine the financial health of a company so that your company grows and consolidates itself as the best.

How to determine the financial health of a company?

Currently there are many useful indicators when studying the finances of your company, below we will show you some of them.

Liquidity indicators

The liquidity indicators are those that throw you information about whether your business has or the ability to respond to the debts and obligations to be paid in the short term, ie in less than a year.

It is important at this point in the analysis to know how you identify the current assets and current liabilities of the business. Ideally, the company has what is necessary to pay the full debts and, in addition, keep a balance for any eventuality. If this is the case with your business, you are on the right track.

Business activity

Knowing how the company works in regard to the resources and movements of the accounts is very important to give a good diagnosis of the health of your business.

There are two ways to check. First, you have to keep track of the number of days it takes the company to recover the money it has invested and verify that it is on schedule.

The second way is to study the efficiency of the sales generated from the fixed assets of the company. The higher the results when rotating the fixed asset, the better.

Both conditions have to be met properly or you will have to correct whatever is preventing it from being so.

Profitability and indebtedness indicators

With the profitability indicators, you will be able to identify the capacity of your business to obtain profits from its sales. You will know it by perceiving how much money the company is left with after paying all the expenses and by calculating the net margin you get.

Regarding the indebtedness indicators, they will confirm the ability of the business to recover from debt, and if it will be possible for you to go into debt again to grow your company with money from third parties. The results are expected to show that the earnings are greater than the debt acquired and the interest involved.

Improve the financial health of your business

When conducting this analysis of your business, you may notice some deficiencies that you can improve so that your finances are at an optimal level. This reality should not discourage you, but rather prompt you to fix the problems that are preventing you from enjoying the desired results.

Once you have taken control again, do not forget to review the indicators that we mention in this article periodically, perhaps once a month, in order to make the necessary corrections in time