MONITOR BUSINESS RATIOS FOR PROFITABILITY


You can manage the profitability of your business by monitoring financial ratios on a monthly basis.
Compare the ratios to the same monthly period in the prior year. 
You can often see problems arising early on if you see the ratios declining. 
You can react to the declining trend before it results in a full scale problem.
Here are some common business ratios worth comparing on a month-by-month and year-by-year basis:


Current Ratio = Current Assets divided by Current Liabilities
Debt to Equity Ratio = Total Liabilities divided by Net Worth
Gross Profit Margin = Gross Profit (Revenue less Cost of Sales) divided by Revenues
Profit Margin = Net Income divided by Revenues
Receivable Days Outstanding = Accounts Receivable divided by the Average Days Revenues

There may be other significant ratios for your specific business.
Chart these ratios and follow them closely. 
It is the change in a ratio which red flags your problems or successes.