Reading your own numbers
Financial analysis turns your records into signals. A few simple ratios tell you if you can pay bills, if you owe too much, and if you keep enough of each sale as profit.
Four signals
Current ratio (assets vs short-term debts) shows if you can pay soon. Debt-to-equity shows how much you owe versus own. Net profit margin shows profit per sale. Return on equity shows how hard your own money works.
Example
If you keep 8 of every 100 in sales as profit, your margin is 8%. If most sellers keep 12%, you're leaking money somewhere — maybe prices too low or costs too high.
A shopkeeper started computing one number monthly: net margin. It drifted from 11% to 7% over four months while sales grew — rising transport costs were quietly eating the growth. Because she compared her own trend instead of guessing, she caught it early and renegotiated delivery before a good year became a loss.
A poultry farmer applying for credit was asked about his current ratio. He had never computed it; his stock was large but his cash near zero, and short debts exceeded both. The application failed — but the ratio showed him exactly why, and six months of converting excess stock to cash turned the second application into a yes.
Practice
A current ratio below 1 signals what?
You may struggle to pay short-term bills — debts due soon are bigger than assets on hand.
Your margin is 4% while others make 10%. What might be wrong?
Prices too low or costs too high — you keep too little of each sale.
From last month's records, write down your current assets and current liabilities, then divide the first by the second.
Below 1 means you may struggle to pay near-term bills; 1.5 or more is comfortable. This one number tells you if cash is tight.
Open the Financial Ratio Calculator, enter your six figures, and lower net income until the margin turns red. What margin does that flag?
It flags when profit per sale drops into risky territory — a signal that prices are too low or costs too high.
