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It's all About the Ratios

It's all About the Ratios

Strong Operational leaders run organizations through a strong tracking of Financial & Operational Ratios. Strong Financial Ratios help in significant shareholder return. Leaders understand this and generally try to align most initiatives that could help in a meaningful impact to these ratios. Sometimes its important to look at ratios not just as a means to measure but more as a means to fine tune process in-efficiencies. Increasing the actual value of ratios require process efficiency and most importantly getting the downstream metrics streamlined.
Ratios tell a story about an organization. And when we look at Financial Ratios its important to understand the look at them over a period of time. Its important to understand the different points in time, a companies cash was at its peak (and perhaps look inwards on why that was the case). The beauty of Financial Statements are that they are all strongly inter-related. So, its important that all the metrics are not looked at in isolation.

Revenue drop over a period of time might not necessarily mean, pure lack of sales closure. It could mean inability to deliver on time as well, depending on the type of business. Or it could mean inability to collect cash on time (revenue reversals for Ageing etc). So its super-important that the ratios are tracked, measured, monitored consistently and even more importantly monthly so that all dependent metrics are all looked at together.

Through our Enterprise Strategy program for Large & Medium Sized Enterprises, we work with executives in making them understand the power of these ratios and fine tune their strategies to align with these ratios.

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