Financial Ratios: Management

Themanagement constitutes the action and consequence of managing a process, project, business or company. To manage is to carry out the activities that make the commercial operation of the entity possible.

The management work extends to the entire set of procedures carried out to resolve a certain issue or specify a project. Management also means the direction or administration of the company or business and what you want it to be called understands the ideas of governing, planning, directing, organizing actions and situations based on the objectives of the business.

Management bases

Starting from the idea that management has the fundamental objective of increasing the optimal results of a company, there are four basic pillars thanks to which the fulfillment of the goals can be achieved marked.

• The first - is the strategy: It is the set of guidelines outlined, with the steps to follow, to strengthen the actions and make them more effective, taking into account the market and the consumer.
• The second - is the culture: It is the group of actions that promote the values ​​of the company, in order to strengthen it, to be able to analyze the decisions made, and to reward the achievements surpassed.
• The third - is the structure: Under the impression of structure is reflected the action that promotes cooperation and teamwork, to design ways to share knowledge and give a better position to the most qualified.
• The fourth - is execution: It consists of making timely decisions and promoting improvements in productivity in order to meet customer needs.

Management indicators

Management indicators make it possible to evaluate the different effects caused by company policies and decisions made regarding the use of economic resources, regarding payments, collections, inventories and heritage.

When measuring management, the activity of the company is evaluated, the effectiveness with which it is making use of the available resources. Management indicators are related to the reasons that allow a process to really be managed.

Management or activity ratios

They are reasons commonly known as change or efficiency ratios, since they measure the efficiency and efficiency, with which a company makes use of its assets, relating to the analysis of liquidity and solvency.

In addition, they measure the effectiveness of the administrative management of working capital, the effects of the decisions made by the company in In relation to the funds used, it shows the management of the company regarding collections, total sales, cash sales and inventories.

These ratios are a comparison between the sales and the assets that the company needs to support this level, considering a value of correspondence between these two.

The management ratios show how quickly accounts receivable and inventories are transformed into cash, in this sense they become a complement to liquidity, since it specifies the approximate period of time in which accounts receivable or inventory becomes money cash. Measuring the capacity of the management of a company to generate internal funds, by taking an adequate administration to the invested resources.

Classification of management ratios

To measure the management of the company, it can be done using the following management ratios:

• Collection turnover ratio: It allows to measure a quite useful index administratively, since it analyzes and evaluates the sales policy on credit and the collection method used, also reflecting the speed with which the money is recovered from the loans granted.

It is calculated by dividing credit sales by trade accounts receivable.

• Collection period ratio: It is a very specific ratio, made to indicate the number of days it will take to recover accounts receivable from customers. It is calculated by dividing accounts receivable by credit sales, then multiplying the result by 360.
• Turnover ratio payable: This ratio is intended to measure the term with which the company cancels the bonuses. It is calculated by dividing credit purchases by trade accounts payable.
• Payment period ratio: This management ratio is used to determine the number of days it takes the company to make payments on its debts to suppliers. It is calculated by simply dividing the total accounts payable by credit purchases, then the amount obtained is multiplied by 360.
• Inventory turnover ratio: It is a widely used management ratio, due to the importance of inventory management. This ratio indicates the speed at which inventories are transformed into accounts receivable through sales, setting the number of times the stock rotates during a given period or year. It is calculated by dividing the cost of sales between the inventories.