Financial health is key to growing and seeking new opportunities, such as government support or financing solutions for SMEs looking to expand or maintain their operations.
Below are some of the main indicators that measure how well an organization is doing in this aspect, which is of great importance for the future of any business.
Main indicators of the financial health of a company
1. Cash flow
This indicator, also known as cash flow, is key to maintaining operations properly, and refers to the inflow and outflow of cash from the company within a specific period.
This expense analysis allows us to identify where we can reduce costs to cover the organization’s priorities in a timely and uncomplicated manner.
Return on Investment (ROI) is an indicator that allows organizations to know how much they have earned for the money they have invested. As part of an analysis to measure results, this metric is essential to observe the performance of the operation, detect failures and opportunities for improvement.
To calculate it, it is necessary to know the total income of the company, subtract the costs, divide the resulting figure by the total costs and multiply the result by 100. This is: ROI = Income-investment % total costs x 100.
It is the amount of money and assets that can be put up for sale to recover cash and meet a company’s commitments.
To identify whether it can meet its immediate obligations, there is a formula known as “acid test”, which consists of subtracting inventories from current assets and dividing the resulting number by current liabilities. That is to say: PA=(Current assets-Inventories)/Current liabilities.
4. Sales growth
Sales and their increase over time are an important aspect when considering the financial health of a business.
When you have a constant increase in income, you can foresee good growth over time, and that the company’s operating results are positive or will become successful in the future.
Although companies can maintain their operations for a time without generating profitability, seeking to generate it is essential.
Among the financial indicators, the one used to measure profitability is the net margin, which is defined as the ratio between profits and total revenues. The higher the net margin, the greater the company’s financial security and growth opportunities.
How does financial health influence obtaining financing for SMEs?
The importance of maintaining positive financial indicators lies in the fact that the continuity of operations, the possibility of carrying out expansion or diversification projects and obtaining financing solutions that allow them to achieve these objectives depend on it.
Tailored solutions, such as those offered by Pymes Capital, are of great help for the growth of businesses. However, the granting of these resources requires an evaluation in which the risks are calculated based on financial health.
Hence the value of monitoring and taking actions to keep your business finances in good condition.