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Financial Intelligence for Entrepreneurs: What You Really Need to Know About the Numbers by Joe Knight, Karen Berman

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22

Efficiency Ratios

Making the Most of Your Assets

Efficiency ratios help you evaluate how efficiently you are managing certain key balance sheet assets and liabilities.

The phrase managing the balance sheet may have a peculiar ring, especially since many company owners focus mainly on managing their business’s checkbook, or at best the income statement. But think about it: the balance sheet lists assets and liabilities, and these assets and liabilities are always in flux. If you can reduce inventory or speed up collection of receivables, you will have a direct and immediate impact on your company’s cash position. Efficiency ratios let you know how you’re doing on just such measures of performance. (We’ll have more to say on managing the balance ...

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