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Chapter 8
The 5 Numbers That Tell You If Your Business Is Healthy
I get a 15-page ratio report. I have no idea what to look at.
20 min read
This is real
"A GM receives a 15-page ratio report from the CFO each month. He never opens it. He doesn't know which five numbers actually matter."
Key concepts
Concept 1
Five ratios that matter
Gross margin, operating margin, current ratio, debt-to-equity, operating cash flow. Track these monthly.
Concept 2
Trends beat snapshots
Any single month is noise. Three months in the same direction is a signal.
Concept 3
Monthly 5-minute check
Pull these five numbers, write the trend arrow next to each, and you'll spot trouble before finance flags it.
Flashcard deck
Tap a card to flip.
Knowledge check
Q1
What signals a real problem, not noise?
Q2
Gross margin tells you:
Q3
Current ratio measures:
Red flag alert
Any of the 5 ratios deteriorating for 3 consecutive months.
Questions to ask your finance team
- 1.Can you produce a monthly one-page dashboard with the five key ratios for my business/division?
- 2.What is our gross profit margin trend over the last 12 months?
- 3.What is our operating cash flow?