What is Your Company Worth? Factor 5: Financial Ratios

What is your company really worth?  Many business owners focus on revenue, but buyers look at more than just the top line.

One of the biggest factors that determines how much you get and how fast your business sells is financial ratios. Buyers compare your company to others in your industry using key metrics, such as:

• Profit margin
• Expensive type and frequency
• Inventory turns
• Debt-to-equity
• Average collection period (days receivables outstanding)
• Interest coverage
• Working capital
• Acid test (quick ratio)

For example, if your customers take 45 days to pay but the industry average is 35 days, you’re essentially offering free financing. That ties up cash, adds collection costs, and weakens your bottom line, reducing buyer confidence and the price they’re willing to pay.

Strong financial ratios show discipline, efficiency, and a well-managed operation. If your numbers are below industry norms, it’s a warning sign—but also an opportunity to improve before selling.  Understanding and improving your financial ratios today can significantly increase your company’s value tomorrow.

For more leadership tips, check out Pam’s blog on 8 Things Exceptional Bosses Constantly Tell Their Employees.