“This year we have grown 20% of sales compared to the previous year and we hit the 2 billion euro in revenue!”.

I’m sure you have heard of this several times in one way to another. Companies that celebrate they made more sales, kept expenses under control or expanded to new markets.

This sounds as successful companies, but it doesn’t necessarily have to be this way.

Many companies know the impact that explaining certain metrics have on the public, especially listed companies, as they know that the way they communicate to investors, competitors and the public in general can have an influence on the way a company is perceived. However, there are many variables that can influence the success of a company.

Looking at a single metric or ratio is not enough, and it might be misleading. A proper analysis would require to look at different ones, and how they are interconnected.

In addition, it would be required to understand how the figures are built. Financial ratios, for example, usually depend on accounting standards, and they may vary depending on the regulations, so that they can be compared with other companies in a similar industry or country.

Also, they need to be complemented with other metrics, or different sources of information. Asking questions should help get a better understanding of the results. For example, a company that is making 20% more revenue in one year. What was the cause? Did they spend more on advertising? Did they have to reduce prices? Did they launch a new product that has been a success in the market? Was there economic growth in general? Has the company taken a different strategy that worked? The same logic could be applied to other accomplishments such as cost controls, expansion plans, etc.

Therefore it is advisable to take a look at the overall picture, and try to understand what the reason why was for any success or failure, and gather as much information as possible, both from the company, the management, the market and economy in general, as there are many variables that may influence the success or failure of a business, especially factors that may lie outside of its control.