What Are Accounting Ratios? | business.com

Accounting ratios give you a better understanding of your business’s financial position.

A critical component of running a successful business is understanding where it stands financially. This helps you see where you are today and predict how you’ll fare in the future. While there are many pieces of financial data to keep on top of, some critical ones are accounting ratios. These metrics can give you a quick idea of where your business stands and how well it is positioned to handle any obstacles that pop up.

What are accounting ratios?

Accounting ratios measure your company’s current and projected financial health. They are based on data in your business’s financial reports. On the surface, accounting ratios may seem complicated, but each measures two line items that you should be able to access quickly and easily from your balance sheet. Here are the most common accounting ratios that small businesses can use.

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