Understanding ratios is key to gaining deeper insights into the health of your business and making smarter decisions.
Imagine you're a farmer with two apple orchards. One day, you decide to count the apples in each orchard. Orchard A has 1,000 apples, while Orchard B has only 500. At first glance, it seems like Orchard A is the clear winner. But what if I told you that Orchard A has 10,000 trees, while Orchard B has only 500? Suddenly, Orchard B doesn't seem so bad, does it?
This is the power of ratios. In business, as in farming, raw numbers can be misleading. To truly understand the health of your business, you need to look at ratios.
You're probably looking at absolute numbers every day, for example, your business has made $10,000 in revenue this week. There are 250 customers who placed orders today, while there were 200 yesterday and 100 on the same day last week, etc.
Ratios, on the other hand, are like the fine print. They may not be as eye-catching at first glance as absolute numbers, but they offer a more accurate picture of your company's health.
Let’s take profit margin as an example. It’s a ratio that compares your profits to your revenues. A high profit margin indicates…
