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•64 The 100 Greatest Business Ideas of All Time

Ask yourself

A lot of non-financial managers discover late in their careers that a good basis
in accounting would have been a boon. Do you know enough about the book-
keeping and management accounts of the business you work in? If the answer
is no, put it right – you could be working with one hand tied behind your back.

Idea 42 – How well are we doing?

An essential driver of business is its performance against the most common ratios
used by boards of directors and shareholders. Here are eight ratios that are fre-
quently used.

Return on capital employed

This is often considered to be the main indicator of the profitability of a business.
After all, the basis of enterprise is to take money in the form of share capital and loan
capital and use it to earn profits. This RoCE percentage is a good guide to the
performance of managers in producing sufficient return. A sudden alteration for
better or worse will give rise to further investigation to see what has changed.

Profit margin

This shows the profits made on each pound of sales. As businesses grow their man-
agers are concerned over time to maintain a good ‘bottom line profit margin’. It is
quite reasonable that peaks and troughs will occur. For example, where a company