7 must financial performance evaluation tools for startups

Financial performance evaluation is a key aspect of any business that can be used for a slew of purposes-for choosing the appropriate source of finance, for making an investment decision, for facilitating workforce planning, to help the business to decide whether to issue dividends or to aid it in the evaluation of a takeover proposal.
A financial performance evaluation will undoubtedly give you a vivid picture of the status quo and provide adequate cues regarding the next step to take. There are numerous indicators that can be employed. And those are:
Revenue growth  Probably the simplest of them all, the revenue growth tells volumes regarding the efficacy of your marketing strategy. It is best to compare with the other players in your industry.  Using past trends, you can also project the future cash flows and take steps accordingly in the lines of cost-control and asset management.
Liquidity ratios
A liquidity ratio can tell you whether you have sufficient cash in hand to meet short term obligations. It can be calculated by dividing current assets divided by current liabilities.
A ratio of less than 1 will mean your short term liabilities are exceeding your assets. On the other hand, a ratio of more than 1 indicates that current assets are exceeding current liabilities. You can also measure how easily assets can be converted into cash by calculating average collection period; accounts receivables multiply with 365/sales, which shows how long it takes a company to redeem its receivables.
Also find out the accounts payable days formula by dividing total purchase value by the average of beginning and ending accounts payable, then use this value to divide 365. The result will tell you the number of days you take pay back suppliers. You can also find out the inventory turnover ratio, sales or inventory, which shows how many times inventory, is needed to be replaced.
Checking the number of months till bankruptcy
 This essentially shows how many months your business will survive if your cash flow from sales totally comes to a halt.
 It can be calculated by dividing bank balance by monthly expenses.
Other solvency ratios
 A solvent company is one which can effectively meet its long-term obligations. You can use the debt to asset ratio or the debt the equity ratio for weighing the solvency of your company.
The debt to asset ratio tells you whether your total debt is exceeding total assets. Just divide total debt by total assets.
A ratio more than 1 is undesirable as your total debt exceeds your total liabilities. Lower than 1 and you are good.
The debt to equity ratio (total debt/total equity) shows the weights of financing of both the creditors and  investors. A higher ratio means a higher financial leverage.
Profitability ratio
Start with the operating margin which essentially is the amount of money available in your hand, after paying all the direct and indirect expenses except interest and tax, from a taka of sale.
Just divide EBIT (Earnings before Interest and Tax) by net sales. You can also find the net margin which is the amount of money available, after ALL expenses have been paid, from a taka of sale. Divide Net income/net sales.
Return on assets shows the efficiency with which a company is using its assets to generate income.
It can be calculated by adding net income with after-tax interest expense then dividing the sum by total assets.
Return on equity manifests the income earned against each taka invested.
It can be found by dividing net income by average shareholder’s equity.
Overhead Expense Percentage
 You can use these to figure out the proportion of sales used to pay overheads such as rent, stationeries, transportation, legal fees etc. Divide overheads by net sales to get the expenses.
More focused ratios
You can also monitor revenue by customer segments, markets or products. This gives you directions as to where to go if you want things fixed. 

One can obtain more information by visiting http://sdasia.co/ or https://www.facebook.com/SDAsia.co

7 must financial performance evaluation tools for startups

Financial performance evaluation is a key aspect of any business that can be used for a slew of purposes-for choosing the appropriate source of finance, for making an investment decision, for facilitating workforce planning, to help the business to decide whether to issue dividends or to aid it in the evaluation of a takeover proposal. A financial performance evaluation will undoubtedly give you a vivid picture of the status quo and provide adequate cues regarding the next step to take. There are numerous indicators that can be employed. And those are: Revenue growth Probably the simplest of them all, the revenue growth tells volumes regarding the efficacy of your marketing strategy. It is best to compare with the other players in your industry. Using past trends, you can also project the future cash flows and take steps accordingly in the lines of cost-control and asset management. Liquidity ratios A liquidity ratio can tell you whether you have sufficient cash in hand to meet short term obligations. It can be calculated by dividing current assets divided by current liabilities. A ratio of less than 1 will mean your short term liabilities are exceeding your assets. On the other hand, a ratio of more than 1 indicates that current assets are exceeding current liabilities. You can also measure how easily assets can be converted into cash by calculating average collection period; accounts receivables multiply with 365/sales, which shows how long it takes a company to redeem its receivables. Also find out the accounts payable days formula by dividing total purchase value by the average of beginning and ending accounts payable, then use this value to divide 365. The result will tell you the number of days you take pay back suppliers. You can also find out the inventory turnover ratio, sales or inventory, which shows how many times inventory, is needed to be replaced. Checking the number of months till bankruptcy This essentially shows how many months your business will survive if your cash flow from sales totally comes to a halt. It can be calculated by dividing bank balance by monthly expenses. Other solvency ratios A solvent company is one which can effectively meet its long-term obligations. You can use the debt to asset ratio or the debt the equity ratio for weighing the solvency of your company. The debt to asset ratio tells you whether your total debt is exceeding total assets. Just divide total debt by total assets. A ratio more than 1 is undesirable as your total debt exceeds your total liabilities. Lower than 1 and you are good. The debt to equity ratio (total debt/total equity) shows the weights of financing of both the creditors and investors. A higher ratio means a higher financial leverage. Profitability ratio Start with the operating margin which essentially is the amount of money available in your hand, after paying all the direct and indirect expenses except interest and tax, from a taka of sale. Just divide EBIT (Earnings before Interest and Tax) by net sales. You can also find the net margin which is the amount of money available, after ALL expenses have been paid, from a taka of sale. Divide Net income/net sales. Return on assets shows the efficiency with which a company is using its assets to generate income. It can be calculated by adding net income with after-tax interest expense then dividing the sum by total assets. Return on equity manifests the income earned against each taka invested. It can be found by dividing net income by average shareholders equity. Overhead Expense Percentage You can use these to figure out the proportion of sales used to pay overheads such as rent, stationeries, transportation, legal fees etc. Divide overheads by net sales to get the expenses. More focused ratios You can also monitor revenue by customer segments, markets or products. This gives you directions as to where to go if you want things fixed. One can obtain more information by visiting http://sdasia.co/ or https://www.facebook.com/SDAsia.co