The evaluation method introduced in this article, I think, is also applicable to large companies. Not noly suitable for startups. That’s how I personally rate a company for continuous improvement. This is not a rigorous study, so feel free and take a look.
I mainly observe three dimensions, here is below:
Net profit margin
Net profit after tax as a percentage of revenue. Assess the company’s profitability.
Total asset turnover
Measure the efficient use of all company assets. It is often related to the management ability of the company.
Equity Multiplier
Total assets divided by shareholders’ equity. Measure your company’s financial health
Evaluation method
Companies can be classified according to these three indicators.
If your net profit margin goes up. At this time, it means that the company benefits. If total asset turnover and equity multiplier are both rising, that’s a fast-growing company. You are excellent in management and finances.
If the equity multiplier is slowly decreasing, it means your company is stabilizing but still growing. It is not as crazy as before, which also shows that your company is getting more and more mature.
If the total asset turnover has not changed, but the income is still rising, it means that your profit is increasing. But be careful if total asset turnover is down but earnings are up. Represents hidden worries for the future.
If your net profit margins are unchanged, or declining, that means the company is going downhill. But don’t worry, if your total asset turnover is still slowly rising, it’s just a sign that the company is maturing.
The worst-case scenario is a decline in total asset turnover and a rise in the equity multiplier. This can mean that the company’s assets cannot be used to make money. The operations are in trouble.
The company can conduct a calculation every quarter to see the increase or decrease of the three indicators in each quarter. Find out your weaknesses early and improve them in advance.
Good luck!