Vinu: Manu, finance executives track dozens of numbers. Which financial ratios truly matter on a monthly basis?

Manu: Monthly tracking should focus on control and early warning, Vinu. You don’t need every ratio—only those that reflect liquidity, profitability, leverage, and efficiency.

Vinu: Let’s start with liquidity. Which ratio comes first?

Manu: The Current Ratio. If current assets are ₹6 crore and current liabilities are ₹4 crore, the ratio is 1.5:1. Anything consistently below 1.2 signals potential short-term stress.

Vinu: Is current ratio enough?

Manu: No. Track the Debtor Days. If receivables are ₹3 crore on monthly sales of ₹6 crore, collections are slowing. Rising debtor days immediately impact cash planning.

Vinu: What about profitability ratios?

Manu: Focus on Operating Profit Margin. For example, operating profit of ₹80 lakh on revenue of ₹8 crore gives a 10% margin. A decline month-on-month indicates cost leakages or pricing pressure.

Vinu: Should executives track return ratios monthly?

Manu:  Yes, at a high level. Return on Capital Employed (ROCE) shows whether capital is being used efficiently. If EBIT is ₹1.2 crore and capital employed is ₹10 crore, ROCE is 12%. A falling ROCE questions expansion decisions.

Vinu: Leverage ratios—how critical are they monthly?

Manu: Very critical. Monitor the Debt–Equity Ratio. If debt rises to ₹9 crore against equity of ₹4 crore, leverage crosses 2:1, which may limit future borrowing and increase finance cost risk

Vinu: Any ratio that links profit and cash?

Manu: Absolutely—the Interest Coverage Ratio. If EBIT is ₹1 crore and interest is ₹40 lakh, coverage is 2.5 times. A declining trend signals repayment stress even if profits look stable.

Vinu: Efficiency ratios—what should be tracked?

Manu: Inventory Turnover for trading or manufacturing businesses. If inventory stays at ₹2 crore while sales grow, capital is getting blocked unnecessarily.

Vinu: Final advice for finance executives?

Manu: Track fewer ratios, but track them consistently every month. When ratios move, decisions must move—on credit control, cost management, borrowing, or growth plans.

Vinu: Clear and practical. Monthly ratios as a management radar.

Manu: Exactly. Ratios don’t just measure performance—they guide timely action.

To learn more about Banking & Financial related topics
We invite you to join our Diamond Membership
Check - https://courses.carajaclasses.com/courses/Diamond-Membership-6305fad1e4b0cccc82d610be
For Special Discount on Diamond Membership 
Connect with us  - https://wa.me/919025100249?text=DLM