Assessing Your Company's Financial Needs

At some point, most businesses require an in-depth look at their financial structure. An expansion project, low cash reserves or a jump in expenses can prompt you to conduct such an exercise. You might also opt to examine your financial structure if you find yourself borrowing more frequently as your sales increase, or if, for example, a customer wants to place a large order and is asking for longer-than-normal credit terms.

One way to analyze your financial health and identify how it might be improved is by looking closely at your financial ratios. Ratios are used to make comparisons between different aspects of a company's performance or how the company stacks up within an industry or region. They reveal very basic information such as whether you have accumulated too much debt, stockpiled too much inventory or are not collecting receivables fast enough.

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