Business War and Competition

The possibility of identifying a declining margin allows you to adjust their prices or business costs. In the worst case scenario, it is clear that the gross profit and gross margin disappear altogether.

In this case, you’re like the people who lost money on sales, but imagined that he could compensate with volume. Do not follow this path.

1. Know how to walk the relationship between debts and assets. This relationship may allow you to know the number of items you have in the company and that belong to someone else, your bank, for example.

An increase in this ratio may be a bad sign: it may be due to a major expansion or indicate that you are taking bigger steps without being able to do that.

2. Do you know what is the average time to collect your receivables? Probably this is one of the most important information for companies that must care costs as it indicates the time during which you will act as “banker” to whom you owe.

To calculate this, you need to know the average daily sales and divide by the number of accounts receivable.

3. Do you know what is the value of accounts payable? An increase in accounts payable may mean that you bought or negotiated over longer periods.

But an increase in unplanned or poorly managed can be an internal warning that the company’s financial structure is weakening.

4. Do you know what is happening with inventory? The ability to control inventory and to know how long this delay to be sold or processed to identify if the business is growing or shrinking.

This ability also indicates the value that could be used in other payments and investments and is subject to non-performing assets.