KEY FINANCIAL RATIOS EVERY STARTUP SHOULD TRACK

1. GROSS PROFIT MARGIN

This ratio shows the percentage of revenue that exceeds the cost of goods sold. A high gross profit margin means your business retains more revenue, which can be reinvested in growth.

Formula: (Revenue - Cost of Goods Sold) / Revenue

2. CURRENT RATIO

The current ratio measures your startup's ability to cover short-term liabilities with short-term assets. A ratio above 1 indicates financial stability.

Formula: Current Assets / Current Liabilities

3. BURN RATE

Burn rate refers to how quickly your startup is spending its available capital. Keeping a close eye on this can help you manage your runway and avoid running out of funds.

Formula: Monthly Operating Expenses / Cash at Hand

4. NET PROFIT MARGIN

This ratio tells you how much of your revenue is actual profit after all expenses have been deducted. A healthy net profit margin is key for long-term sustainability.

Formula: Net Profit / Revenue

5. CUSTOMER ACQUISITION COST (CAC)

CAC measures how much it costs to acquire a new customer. By comparing CAC to the Customer Lifetime Value (CLV), you can evaluate if your marketing and sales strategies are cost-effective.

Formula: Total Sales & Marketing Expenses / Number of New Customers

6. DEBT-TO-EQUITY RATIO

This ratio indicates how much debt your company is using to finance its growth compared to its equity. A low ratio is generally safer, as it shows the business is less reliant on borrowing.

Formula: Total Liabilities / Shareholder Equity