Financial Guide for SMEs - SME Corporation Malaysia

Financial Guide for SMEsBalance Sheet RatiosThese ratios indicate how effi ciently your business isusing assets and equity to make a profi t.HINTUse the return onassets andinvestment ratios toassess the effi ciencyin the use of yourbusiness resourcesReturn on assets = Net profit before tax x 100Total assetsThis measures how effi ciently profi ts are being generated from the assetsused in the business. The ratio will only have meaning when compared withthe ratio of others in similar industry. A low ratio in comparison with the industryaverage indicates an ineffi cient use of business assets.Return on Investment = Net profit before tax x 100EquityThe return on investments (ROI) is perhaps the most important ratio of all asit tells you whether or not all the efforts put into the business is yielding anappropriate return on the equity generated, in addition to achieving the strategicobjective.TIPThese ratios will provide an indication of how effective is yourinvestment in the business28Chapter 2-5 p22-65 Eng.indd 288/15/11 5:01:52 PM