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What questions would you ask when assessing the financial health of a business?

What questions would you ask when assessing the financial health of a business?

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The questions I would ask for assessing the financial health of a business are as follows:

  1. What is the company's liquidity position?
  2. What is the company's solvency position?
  3. What is the operating efficiency of the business?
  4. What is business profitability?

These four questions can be answered through ratio analysis. There are various ratios that determine the business profitability, solvency, liquidity and operating efficiency.

Liquidity Ratios:

  • Current Ratio
  • Quick Ratio
  • Cash Ratio
  • Working Capital Ratio

Solvency Ratios:

  • Current Debt To Inventory Ratio
  • Current Debt To Net Worth Ratio
  • Fixed Assets To Net Worth Ratio

Profitability Ratios:

  • Return On Assets
  • Return On Equity
  • Profit Margin

Operating Efficiency Ratios:

  • Debtors Turnover
  • Fixed Assets Turnover
  • Inventory Turnover
  • Total Assets Turnover
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