Your business lives and dies by its financial ratios. They’re the tools you – and others – use to assess the relative strength of your company without having to weed through the detail on your income statement or balance sheet.
Typically, you use four main types of financial ratios for software companies:
Liquidity is the ability of a company to pay its short-term bills. How liquid is the company? How much cash is available? How much do we have in short terms bonds? How much do we have in money markets? Your current ratio provides this information.
Solvency indicates a company’s financial stability. How much debt do you have compared to assets? A company with too much debt might have a problem managing cash flow.
These ratios help management measure the ability to convert sales to profits and ultimately cash flow.
How efficient is your company’s inventory and receivables turnover? How quickly are you turning over your inventory? Once a year? Ten times a year? And how long does it take to get your receivables billed and paid?
A robust ERP system puts all of these ratios at your fingertips so you can easily use them to make comparisons to last month, last quarter or last year to see how you’re trending in your own history.
You can also use your ratios to compare against your budgeted ratios. How do you compare to where you wanted to be? Or industry standards? There’s no need for spreadsheets and number crunching. Your robust ERP system allows you to access this real-time information directly from your dashboard so you can actively monitor performance and make quick decisions.
If you see your receivables turnover declining, click to open that information and identify past due receivables or certain customers who may be causing the decline. See the result and quickly drill into the necessary detail to help resolve the issue.
A robust ERP system allows you to:
- Drill down into detailed reports
- Take advantage of pre-built financial scorecards
- Compare this period to last period
- Easily identify up and down trends
An Integrated Solution
Ratios simplify your financial statement review and analysis. Easily compare your company’s strengths against its history, against other industries and allow users to easily judge how your company is doing.