The financial health of a company is key to maintaining its profitability and seeking growth within the markets. For this, it is important to analyze aspects such as solvency, business operating efficiency, liquidity, among other fundamental elements that allow business finances to be in good condition.
The lack of liquidity caused 35% of Mexican SMEs to go bankrupt in 2022. For this reason, today more than ever it is essential to know these indicators and evaluate financial health to promote business competitiveness and boost its growth.
What does financial health consist of in a business?
Financial health is the condition of a company where there is the ability to maintain a balance between expenses and income, face short and long-term financial obligations, adequate debt management, profitability and sustainable growth.
In this case, good financial health implies proper resource management, careful planning and responsible debt management, in order to maintain and boost your operations.
How to assess the financial health of a company?
It is important to explore some indicators and analyze them to take the necessary measures to maintain the good financial state of the company. Here are some items to consider:
1. Liquidity
It is the ability of the company to pay its obligations in the short term. Analyzing liquidity is necessary to affirm that the company has enough capital to cover its operating expenses and meet its financial obligations, such as paying bills and payroll.
To know it, you have to calculate the cash conversion cycle, know the cash flow statement or the two types of liquidity ratios. In the event that there is not enough liquidity, online loans can be a great option to get the business going.
2. Profitability
An analysis of this factor is important to ensure that the company is generating enough revenue, covering expenses, and at the same time generating profit.
It is important to evaluate the margin of income and expenses, in addition to the return on investment and return on equity, to have a clear picture of the company’s profitability.
3. Solvency
It is the ability of the company to meet its obligations in the long term. By dividing the total assets by the total liabilities, it is possible to know if the company has the necessary assets to cover its long-term debts and avoid bankruptcy.
In any case, the various sources of financing for a company can be the quick and viable solution to become solvent.
4. Operational efficiency
It is the ability of the company to use its resources effectively seeking to generate income.
To do this, it is important to calculate the amount of revenue a business generates relative to its assets, the number of times the business sells its inventory during a certain period of time, and the time it takes to collect on its outstanding customer accounts.
The role of a company’s sources of financing for financial health
Accessing financial products such as online credits can be a great help for companies seeking to obtain the necessary liquidity to operate, expand and achieve their objectives in the short and long term.
It is important for the company to choose a source of financing that is suitable for its financial situation and objectives, since conditions change if a company already has a large debt or if it is just beginning its operations against large international corporations.
Pymes Capital is an ideal online loan option for start-ups, since financing is granted with a simple and online process. Learn more about our online credits and get the financing you need to improve the financial health of your company.