1. Liquidity Ratios: Can You Pay Your Short-Term Bills?
Liquidity ratios measure your ability to meet short-term obligations without running out of cash.
a. Current Ratio: Your First Check on Financial Health
Formula: Current Ratio = Current Assets ÷ Current Liabilities
What it means: If you sell construction materials or electronics, this ratio tells you whether you have enough assets (cash, inventory, receivables) to cover short-term bills.
Example: Imagine you have $50,000 in cash, inventory, and receivables but owe $25,000 in short-term payments.
$50,000 in assets ÷ $25,000 in liabilities = 2.0
This means you have $2 in assets for every $1 you owe—indicating healthy liquidity, just like leading businesses target.
Why it matters: Businesses with a strong current ratio can negotiate better deals with suppliers and invest in growth opportunities.
b. Quick Ratio: The Acid Test for Liquidity
Formula: Quick Ratio = (Current Assets – Inventory) ÷ Current Liabilities
What it means: Inventory isn’t always easy to turn into cash. The quick ratio excludes inventory to give you a more realistic look at your immediate cash situation.
Example: Let’s say you have $30,000 in cash and receivables, but $10,000 tied up in unsold goods. If your short-term liabilities are $20,000:
(30,000−10,000)÷20,000 = 1.0
This means you just meet your obligations—a solid benchmark for liquidity.
Why it matters: If you need quick cash for new opportunities or emergencies, a healthy quick ratio means you’re ready.
2. Profitability Ratios: Are You Making Enough Profit?
Profitability is the backbone of any successful business. These ratios measure how well your business generates profit relative to assets or equity.
a. Return on Assets (ROA): Making the Most of Your Investments
Formula: ROA = Net Income ÷ Average Total Assets
What it means: ROA tells you how efficiently you use your assets (inventory, machinery, cash) to make a profit.
Example: Suppose your annual profit is TMT 20,000, and your average assets total TMT 200,000.
20,000 ÷ 200,000 = 10%
This 10% ROA shows your assets are working efficiently—similar to international wholesalers and retailers.
Why it matters: A higher ROA means better resource utilization, which attracts more buyers and investors.
b. Return on Equity (ROE): Are Your Investments Paying Off?
Formula: ROE = Net Income ÷ Shareholders’ Equity
What it means: ROE measures how much profit you generate for each unit of investment (equity).
Example: If you invest TMT 50,000 in your business and earn TMT 10,000 in profit:
10,000 ÷ 50,000 = 20%
This shows a strong return on investment—something that excites both sellers and stakeholders.
Why it matters: A high ROE signals a profitable and well-managed business ready to scale.
3. Efficiency Ratios: Are You Managing Your Resources Well?
a. Inventory Turnover: Sell Faster, Earn Faster
Formula: Inventory Turnover = Cost of Goods Sold (COGS) ÷ Average Inventory
What it means: This ratio tells you how quickly you sell and replace inventory. High turnover means efficient stock management.
Example: If your Cost of Goods Sold (COGS) is TMT 40,000, and your average inventory is TMT 10,000:
40,000 ÷ 10,000 = 4 times per year
You sell and restock your inventory 4 times annually — a rate comparable to successful wholesale distributors.
Why it matters: Faster inventory turnover frees up cash and warehouse space for new, in-demand products.
b. Accounts Receivable Turnover: Get Paid on Time
Formula: Accounts Receivable Turnover = Net Sales ÷ Average Accounts Receivable
What it means: This ratio shows how quickly you collect payments from buyers.
Example: If your annual sales are TMT 60,000 and your outstanding receivables average TMT 15,000:
60,000 ÷ 15,000 = 4 times per year
You collect payments 4 times a year — ensuring consistent cash flow.
Why it matters: Efficient collections mean fewer delays in growing your business and fulfilling large orders.
4. Why 📈 ALSAT Sellers Need to Track These Ratios
Running a business without understanding these metrics is like driving blindfolded.
Here’s why tracking your ratios matters:
• Sell Faster: Manage your inventory effectively and keep cash flowing.
• Earn More: Understand how to maximize profits on every deal.
• Stay Flexible: Use liquidity ratios to handle expenses and grow confidently.
• Attract Buyers: Show you’re a reliable and efficient seller.
Get Started Today!
By mastering these financial ratios, you’ll not only grow your business but also stand out on 📈 ALSAT — Turkmenistan’s premier B2B wholesale platform.
Ready to turn your surplus inventory into steady cash flow? Start tracking, optimizing, and scaling your sales like never before! 🚀
