Do you only check your profit and loss statements? Your balance sheet tells you much more than your profit and loss statement, says our friend Ruth King. It actually tells you how profitable your company is.
Your balance sheet shows your current assets divided by current liabilities.
Current assets are cash, accounts receivable, inventory and prepaid expenses.
Current liabilities are accounts payable, taxes payable, deferred maintenance revenue and current part of long term debt.
Increasing current ratio means increasing profitability. Decreasing ratio, most of the time, means decreasing profitability.
Your balance sheet also tells you if:
- You may be running out of cash
- You have a collection problem
- You are taking on too much debt or too much inventory.
Your balance sheet is your weather vane. It gives warning signs of impending problems so that you can take care of them before they become major crises.
If you want more information on how to understand your balance sheet, order Ruth’s book, The Courage to be Profitable: Get and Stay Profitable in Less than 30 Minutes a Month. It’s available on Amazon, on Audible, or if you want an autographed copy, call her at 770-729-0258.
Sign up for Ruth’s complimentary newsletter at email@example.com
We share such ideas in Maverick Entrepreneurs’ Million Dollar Strategies.
For a $20 personally autographed copy, contact us at 803-331-6695.
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