<\/span><\/h3>\nThis group of indicators measures the safety of a business in the short term \u2013 whether the business has enough current assets to pay its debt obligations. This group of indicators is important for industries with fast business cycles such as trade, retail, FMCG or businesses with high cash flow pressure.<\/p>\n
a. Current ratio \u2013 current payment ratio
\n<\/b> Recipe: Current ratio = Current assets \/ Current liabilities
\n<\/i> Meaning:<\/p>\n\n- 1 shows that the business has good payment ability.<\/li>\n
- < 1 warns of cash flow shortfall risk.<\/li>\n<\/ul>\n
For example: The Current ratio of an F&B business decreased from 1.2 to 0.8 in 2 consecutive quarters, showing that most of the short-term assets are "stuck" in inventory or uncollected debts.<\/p>\n
b. Quick ratio \u2013 quick payment ratio
\n<\/b> Recipe: Quick ratio = (Current assets \u2013 Inventory) \/ Current liabilities
\n<\/i> Meaning:<\/p>\n\n- Reflects the ability to pay without selling inventory.<\/li>\n
- Important for slow inventory businesses (fashion, manufacturing).<\/li>\n<\/ul>\n
c. Cash ratio \u2013 cash ratio
\n<\/b> Recipe: Cash ratio = (Cash + Cash equivalents) \/ Current liabilities
\n<\/i> Meaning:<\/p>\n\n- Measures the amount of debt that can be paid immediately in cash.<\/li>\n
- Suitable for measuring liquidity risk during crisis or low season.<\/li>\n<\/ul>\n
<\/span> 2. Profitability Ratios<\/b> <\/span><\/span><\/h3>\nProfitability ratios show how much profit a business is generating from its sales, assets, and equity. These are the metrics that investors and management prioritize in monitoring.<\/p>\n
a. Gross profit margin \u2013 gross profit margin
\n<\/b> Recipe:
\n(Gross profit \/ Revenue) \u00d7 100%
\n<\/i> Meaning:<\/p>\n\n- Evaluate core performance in production or sales.<\/li>\n
- Declining gross margin reflects increased cost of goods sold or strong price competition.<\/li>\n<\/ul>\n
b. Net profit margin
\n<\/b> Recipe: (Net income \/ Revenue) \u00d7 100%
\n<\/i> Meaning:<\/p>\n\n- Measures the actual profit remaining after all costs.<\/li>\n
- The most important index for investors.<\/li>\n<\/ul>\n
c. ROA \u2013 return on assets
\n<\/b> Recipe: ROA = Net income \/ Total assets
\n<\/i> Meaning:<\/p>\n\n- Shows how effectively a business uses its assets.<\/li>\n
- Important for manufacturing, logistics or large fixed asset businesses.<\/li>\n<\/ul>\n
d. ROE \u2013 return on equity
\n<\/b> Recipe: ROE = Net income \/ Equity
\n<\/i> Meaning:<\/p>\n\n- Measures the efficiency of using equity capital.<\/li>\n
- High ROE but large debt can be a signal of risk (related to leverage group).<\/li>\n<\/ul>\n
e. ROI \u2013 return on investment
\n<\/b> Recipe: (Return on investment \u2013 Investment cost) \/ Investment cost
\n<\/i> Application:<\/p>\n\n- Evaluate the effectiveness of branch expansion<\/li>\n
- Investing in marketing and technology<\/li>\n
- Production and warehouse projects<\/li>\n<\/ul>\n
<\/span> 3. Efficiency Ratios<\/b> <\/span><\/span><\/h3>\nThis group of indicators reflects the ability of a business to use assets, inventories and working capital to generate revenue and cash flow. This group directly affects the liquidity situation.<\/p>\n
a. Inventory turnover
\n<\/b> Recipe: COGS \/ Average inventory