Every economics sophomore already knows that there is such an instrument as financial indicators (financial ratios). We are guessing that the majority understands about their usefulness. It would seem that relative financial indicators can enjoy a global recognition among the economic-financial services workers, who once were also sophomores.
However, to have and to use the knowledge isn't the same. Why we are remembering this old topic?
The long-term experience has led to a strange conclusion from the first sight: very often complex financial situations are possible to be resolved using simple solutions.
This is not a rule, but it surely is a trend. Applying these findings to our study, the bottom line can be formulated in such tip: it is better to calculate relative financial indicators (financial ratios) than not to. The advice is really simple: choose from a long series of relative financial indicators (financial ratios) those, that are most suitable for evaluation of your business and financial results judging by the objective and subjective reasons, then calculate the selected indicators for at least one financial year, every month. Even better would be to calculate financial ratios not only for the current year by the months, but also for the previous financial year by the month of performance and to compare them. And even better than that... as they say, appetite grows with eating. Namely, we wish you to count financial ratios and use the results of the calculation for controlling your business's financial position. We believe that this is fundamentally a useful thing to do. It's a good start while using financial management tools. A universal relative financial indicator or group of them who are fit for any business description has not been invented yet. Therefore, you will have the duty and responsibility to choose the relative financial performance as a basis to analyze and evaluate your company's results. Clearly, this is a complex and responsible work, but at least it’s never too late to change the list of indicators. We want to help you protect yourself from a simple risk: do not include into the list such indicators, if you do not understand the meaning of their financial or mathematical logics clearly. Of course, finding the formula or the interpretation of any indicator is not a problem today. However, while working with financial indicators, it is very important to know not only the formula but also to have the experience, which helps to understand the results and trends, and to develop an ability to evaluate and interpret them. The second advice is: if you calculate the maximum number of the indicators, use computer programs, that way it will be more efficient and will reduce the opportunity of technical error.
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