Next time you meet with your accountant, ask him to go over four key financial measures with you, suggests Gary Sipiorski, president of Citizen’s State Bank of Loyal in Loyal, Wis. “These numbers can really help you assess your business and whether your money is working for you.”
First, know your equity position, or loan-to-asset ratio. It should be 30 percent or greater.
Figure your asset turnover rate. You ought to generate $1.40 for every dollar invested in your business.
Know your return on equity. It should be at least 6 percent.
Know your return on assets. The rate should be at least 8 percent or better.
“In 1980, expenses accounted for about 50 percent of your milk check,” Sipiorski notes. “Today that’s risen to about 80 percent.” This 30 percent difference in the cost of expenses makes it more important than ever that this smaller remainder be invested well.