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Whether sales are up, down, or sideways, the financial strength – and staying power – of every business is shown on its Balance Sheet. And revealed by its Balance Sheet ratios.
Particularly telling is the trend of those ratios. That's why The ROI has developed this specialized FINANCIAL STRENGTH Rater for retailers.
Ready to try it out? Watch this short – and silent! – Quick Start Guide.
Need a refresher about those ratios, and how to calculate them for your own business? See the Benchmarks Resource Center here at The ROI, including a free KEY RATIOS Calculator.
(Images A and B)
While the Hardware Stores segment and the Gift, Novelty & Souvenir Stores segment have very close total scores – 17 and 18 – they each are strong in different ways. (Or, they each have different potential trouble spots.)
(Images C and D)
But, the careful observers will quickly point out what looks to be a mistake. For both segments, the trends of the Current Ratio and the Debt-to-Worth ratio received identical TREND descriptions – "Slightly Down" or "Substantially Up" – but very different SCORES. What's with that??
(Image E)
The INFO button has the answer. For the Debt-to-Worth ratio, Lower Is Better. So, when the Debt-to-Worth ratio trend is declining for a business, that is a good sign; less money is owed to creditors. And therefore, for that ratio, a declining trend receives a higher score.
Above are some screen shots of the Financial Strength Rater in action. We used the Benchmark numbers from a couple segments to illustrate.
While the Hardware Stores segment and the Gift, Novelty & Souvenir Stores segment have very close total scores – 17 and 18 – they each are strong in different ways. (Or, they each have different potential trouble spots.) You can see this by comparing the Scores for each ratio.
But, the careful observers will quickly point out what looks to be a mistake! For both segments, the trends of the Current Ratio and the Debt-to-Worth ratio received identical TREND descriptions – "Slightly Down" or "Substantially Up" – but very different SCORES. What's with that??
The INFO button has the answer! For the Debt-to-Worth ratio, Lower Is Better.
So, when the Debt-to-Worth ratio trend is declining for a business, that is a good sign; less money is owed to creditors. And therefore, for that ratio, a declining trend receives a higher score.
The Retail Owners Institute® has been empowering retailers since 1999 to "Turn on their financial headlights!" Our tools and resources are trusted by thousands of store owners to help grow profitable, resilient businesses.