The best small companies have managers that use a variety of business tools. These help with keeping an eye on profits and measuring performance. But some go a step further and quantitative tools that apply statistical and mathematical formulas. When using these business tools managers can gauge a logical approach to future analysis.
The financial ratio breaks down information on a company financial statement. It will help with indicating the ability to meet obligations, future profit on sales and the company asset revenue. Financial ratios can be used for internal procedures, but are also available to check on other competitors in the market. This will help small companies compete by revealing what areas need to be addressed.
Forecasts are used to calculate the estimates of internal production output and sales revenue. Most business owners use the forecasts to arrange strategic plans on purchasing economic resources. One of the most common methods in forecasting is the ‘percent of sales’. This will calculate the estimated profits of goods sold over a period of time.
Economic models are a form of quantitative analysis that can help with both internal and external business. Managers and owners use game theory and decision trees to predict how well the company will do in adverse economic conditions. The methods take into account the role of consumers, competitors and probability of success. A number of different outcomes may be provided depending on the information given.
This article was taken from the Winflow Financial Group Blog. You can also follow us on Twitter.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.