Key Financial Performance Indicators That Will Help You Grow Your Business...

KPI blog

Your business KPI (Key Performance Indicators) are your tools for measuring and tracking progress in essential areas of company performance. Your KPIs provide you with a general picture of the overall health of your business. Organizations use KPIs at multiple levels to evaluate their success at reaching targets. High-level KPIs may focus on the overall performance of the business, while low-level KPIs may focus on processes in departments such as sales, marketing, HR, support, and others. You have a firm handle on the day-to-day running of your business and know how to get things done. But, you also know that getting things done isn’t enough: The long-term success of your business depends on big-picture thinking, grasping financial KPIs, and acting like a CEO. the first priority is to identify and understand the over impact that the various financial realities represented by your KPI number have on your business. Then use the financial management performance indicators to identify and implement changes to correct problems with policies, processes, personnel, or products that are impacting one or more of your KPI values. So, besides tracking the KPIs that help you measure performance today, look at the following KPIs that will help you think and strategize like a CEO.

Operating Cash Flow

Understanding the cash flow statement – which reports operating cash flow, investing cash flow, and financing cash flow — is essential for assessing a company's liquidity, flexibility, and overall financial performance. This KPI is used in comparison with the total capital you have in use-analysis that reveals whether or not your operations are generating sufficient cash for support of capital investment you may be made to advance your business. It will give you deeper insight into your business's financial health.

Working Capital

Working capital is a financial metric which represents operating liquidity available to a business, organization, or other entity, including governmental entities. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Cash on hand accounts receivable, short-term investments are all included, as well as accounts payable, accrued expenses and loans are all part o this KPI equation. The KPI informs you of the condition of your business in terms of available operating funds.

Current Ratio

The current ratio is a liquidity ratio that measures whether a firm has enough resources to meet its short-term obligations. In general, a current ratio between 1.5 to 2 is considered beneficial for the business, meaning that the company has substantially more financial resources to cover its short-term debt and that it currently operates in stable financial solvency. the current ratio KPI divides total assets by liabilities to give an understanding of the solvency of your business.

Debt to Equity Ratio

The debt-to-equity ratio is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. Closely related to leveraging, the ratio is also known as risk, gearing, or leverage. This KPI indicates how well your business is funding its growth and how well you are utilizing your shareholders' investment. The number indicates how profitable the business is.

LOB (Line of Business) Revenue vs. Target

This is a comparison between your actual revenue and your projected revenue. Charting and analyzing the discrepancies between these two numbers will help you identify how your department is performing. This one of the two primary factors in the calculation of the budget Variance KPI.

LOB Expenses vs Budget

Comparing your actual overhead with your forecasted budgeted amounts to producing this KPI. Understanding where you deviated from your plan can help you create a more effective departmental budget in the future. Knowing the amount of variance between the total assumed and the total actual ratio of revenues to expenses helps you become an expert on the relationship between your business's operations and finances.

Accounts Payable Turnover

The accounts payable turnover ratio is a short-term liquidity measure used to quantify the rate at which a company pays off its suppliers. Accounts payable turnover shows how many times a company pays off its accounts payable during a period. This is a very informative ratio when compared over multiple periods. a declining account payable turnover KPI may indicate that the length of time your company is taking to pay off its suppliers is increasing and that action is required in order to keep your good standing with your vendors.

Accounts Receivable Turnover

Receivable Turnover Ratio or Debtor's Turnover Ratio is an accounting measure used to measure how effective a company is in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets. This KPI is calculated by dividing your total sales for a period by your average accounts receivable for that period. This number can serve as an alert that corrections need to be made.

Inventory Turnover

In accounting, Inventory turnover is a measure of the number of times inventory is sold or used in a time period such as a year. This KPI is calculated to see if a business has an excessive inventory in comparison to its sales level. the KPI is calculated by dividing sales with a given period by your average inventory in the same period. This gives you a picture of your company's sales strength and production efficiency.

Return on Equity

The return on equity (ROE) KPI is a measure of the profitability of a business in relation to equity. Because shareholder's equity can be calculated by taking all assets and subtracting all liabilities, ROE can also be thought of as a return on assets minus liabilities. Regardless of how much your company's net worth is, your current net income will determine its probably worth in the future. . Your business's ROE ratio both informs you of the amount of your profitability and quantifies its general operational and financial management efficiency.

Quick Ratio

In finance, the quick ratio KPI, also known as the acid-test ratio ( after the nitric acid test used in detecting gold) is a type of liquidity ratio, which measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. If you are a new adopter of KPI's the quick ratio KPI is a good approach to getting a quick view of your business's overall health.

Customer Satisfaction

Customer satisfaction is a term frequently used in marketing. It is a measure of how products and services supplied by a company meet or surpass customer expectations. While budget-linked KPIs are important, the ultimate indicator of a company's potential for long-term success is in its Customer Satisfaction quantification. Customers who believe their feedback is valued are much more likely to be engaged customers, which is why collecting and acting on individual customer feedback in a timely manner is essential. Use your Net Promoter Score (NPS) data and customer feedback. Net Promoter or Net Promoter Score (NPS) is the percentage of customers rating their likelihood to recommend a company, a product, or a service to a friend or colleague. The NPS is a simple and accurate measurement of likely customer retention.

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James E. Wilson, CPA is a team of professionals provide innovative financial solutions designed for today’s business owner. Our advisors treat each client relationship with the loyalty and care required to properly advise you now and well into the future.

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