Businesses must focus on eliminating waste and escalating production output from current operations . This performance review process does not generally require financial ratios .
Potentially Worthless
Financial ratios alone do not provide business owners with much value . These ratios usually need a comparison number so the business can gauge the effectiveness of their operations . Small business owners may struggle to find another business with similar operations for comparison in this process . The industry standard for financial ratios can also distort the business ' s financial ratio information . Large organizations are generally able to run operations more efficiently than smaller businesses .
A minimum of five years worth of ratios need to be analyzed to get a clear picture of the company ' s financial position . Even when the good and bad aspects of how a company has performed overtime have been revealed , the investor ' s job isn ' t finished . This information needs to be analyzed in light of the economy in general and other companies of similar size and type or in other words the competition .
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