Financial indicators: how to tell if a company is doing well

Què sòn els indicadors financers? 

financial indicators, also known as financial ratios, are tools to analyse the state of a company. This way, it is possible to know whether the company's management is good or bad, as well as in which departments or areas of the company it is correct or incorrect.

A financial indicator is a metric. It is a verifiable data that can be qualitative or quantitative, and which is obtained through a proportion, relationship or quotient of values of two concepts.

As explained by the financial director of Edenred, financial indicators They measure the efficiency of the company and are always very useful for seeing its evolution and supporting the decisions that are made.. Furthermore, it should be borne in mind that there are different financial indicators that will provide specific and differentiated information about the company. Therefore, depending on the information we want to know, it will be of interest to use one type or another. 

How to measure the efficiency of your company?

Although there are many financial indicators or ratios that can be used, there are four that are indispensable in any company.

1. Own fundsThey indicate the theoretical value of the company for the shareholder. If such funds are less than half of the company's share capital, the company would be in a state of dissolution.
2. The Immediate Liquidity Test (or Acid Test)It is one of the indicators that reflects the company's ability to meet its short-term debts. It is calculated by comparing the most liquid assets with current liabilities (short-term debts). Its value should be close to 1.
3. The capacity to generate cashIt is an indicator of great importance today. The business objective must be to generate sufficient liquid assets to meet payment obligations. This indicator is always linked to a correct cost structure so that it adapts to fluctuations in demand.
4. Debt indicatorsThe level of indebtedness indicates the proportion in which creditors participate in the total value of the company. It serves to identify the appropriateness of the presented level of indebtedness. High indebtedness ratios can only be admitted when the rate of return on total assets is higher than the average cost of financing. Furthermore, the level of indebtedness should also be compared with competitors (companies operating in the same sector and presenting a similar situation).

How to analyse financial indicators

In order to analyse the financial ratios or indicators, it is necessary to have a team that knows how to interpret the indicators correctly. Furthermore, this team must be capable of renewing them in the event that the company's reality changes, or in the event that the future evolution of the market leads us to different conclusions. 

The professional profile They must be someone accustomed to working with data and who loves rigour. Above all, they must be open-minded and not dismiss any scenario, however remote it may seem.
At the current juncture, cost management and control is indispensable in all organisations. In fact, the company's ability to adapt to different economic times largely depends on its control. Therefore, it is essential so that it does not end up oversized and disappear due to not having a flexible cost structure. In other words, it is a key element in ensuring the survival and continuity of the company, which is why it's important to allocate the necessary resources to its implementation and consolidation.