Financial KPIs are specific measurements that enable financial experts and managers to assess a company’s performance and track progress towards its strategic objectives. A diverse range of financial KPIs are utilized by various businesses to evaluate their accomplishments and propel growth. It’s crucial for each company to identify the most significant KPIs tailed to its operations. To assist business leaders in selecting the most appropriate KPIs for their organizations this year, we’ve highlighted the following 30 KPIs to pay attention to.
How Do you Know Which KPIs are Right for Your Organization?
Selecting the most relevant and valuable KPIs for your business can pose difficulties. In our last post we covered some top KPIs your business should track including financial AND operational.
The KPIs that are most suitable for your company will be influenced by its objectives, operational procedures, and business model. Certain KPIs are applicable across various industries, such as accounts receivable turnover and the quick ratio. However, other KPIs may vary depending on the industry. For instance, manufacturers need to track their inventory status, while service-based companies might emphasize measuring revenue per employee as a gauge of efficiency.
30 Financial Metrics and KPIs to Put on Your Radar This Year
As we’ve gotten well underway with this year, it’s important to check in and reassess your financial strategies and set new goals if something isn’t working. One essential aspect of this process is measuring key performance indicators (KPIs) to monitor progress and identify areas for improvement.
1. Gross profit margin
This KPI measures the percentage of revenue left after deducting the cost of goods sold. A higher gross profit margin indicates more profitability. Gross profit margin is a crucial KPI for businesses because it provides insight into their profitability and the efficiency of their operations.
Gross profit margin = (Net sales – COGS) / Net sales x 100
2. Net profit margin
This KPI measures the percentage of revenue remaining after all expenses are deducted, including taxes and interest. It provides insight into a company’s overall profitability.
Net profit margin = (Net income / Revenue) x 100
3. Return on equity (ROE)
This KPI measures how much profit a company generates with its shareholder’s equity. It’s a crucial indicator of how effectively a company is utilizing its resources.
Return on equity = (Net income / Shareholder’s equity)
4. Return on assets (ROA)
This KPI measures a company’s ability to generate profit from its assets. A higher ROA indicates more efficient use of assets.
Return on assets = Net income / Total assets for period
5. Return on investment (ROI)
This KPI measures the profit generated from investments. It’s an essential metric for investors and helps businesses determine the effectiveness of their investments.
Return on investment = (Final value, including dividends and interest – Initial value) / Initial value
6. Earnings per share (EPS)
This KPI measures the amount of profit generated per share of stock. It’s a critical metric for shareholders and investors.
Earnings per share = Net income / Weighted average number of shares outstanding
7. Debt-to-equity ratio
This KPI measures the proportion of a company’s debt to its equity. It provides insight into a company’s financial risk and leverage.
Debt-to-equity ratio = Total liabilities / Total shareholders’ equity
8. Current ratio
This KPI measures a company’s ability to pay its current liabilities with its current assets. A higher current ratio indicates more financial stability.
Current ratio = Current assets / Current liabilities
9. Quick ratio
This KPI measures a company’s ability to pay its current liabilities with its most liquid assets. It’s a more stringent measure of a company’s liquidity than the current ratio. Businesses tend to aim for a quick ratio in excess of one.
Quick ratio = Quick assets / Current liabilities
10. Accounts receivable turnover
This KPI measures the number of times a company collects its average accounts receivable balance in a year. A higher turnover ratio indicates a more efficient collection process.
Accounts receivable turnover = Sales on account / Average accounts receivable balance for period
11. Inventory turnover
This KPI measures the number of times a company sells and replaces its inventory in a year. A higher turnover ratio indicates a more efficient inventory management process.
Inventory turnover = COGS / Average inventory balance for period
12. Days sales outstanding (DSO)
This KPI measures the average number of days it takes a company to collect payment on its sales. A lower DSO indicates a more efficient collection process.
Days sales outstanding = 365 days / Accounts receivable turnover
13. Operating cash flow ratio (OCF)
This KPI measures a company’s ability to generate cash flow from its operations. It’s a crucial metric for assessing a company’s financial health.
Operating cash flow ratio = Operating cash flow / Current liabilities
14. Working capital ratio
This KPI measures a company’s ability to meet its short-term obligations with its current assets. A higher working capital ratio indicates more financial stability.
Working capital = Current assets – Current liabilities
15. Gross revenue
This KPI measures a company’s total revenue before deducting any expenses.
Gross revenue for product-based businesses = Number of goods sold x Price of goods sold
Gross revenue for service-based companies = Number of customers x Price of service
16. Operating income
This KPI measures a company’s income from its operations before deducting any taxes or interest.
Operating income = Total revenue – COGS – Operating expenses
17. Operating expenses
This KPI measures a company’s expenses related to its operations, including salaries, rent, and utilities. A lower operating expense ratio (OER) indicates expenses are minimized when compared to revenue.
Operating expenses = (All operating expenses – Depreciation) / Operating income
18. Cost of goods sold (COGS)
This KPI measures the direct costs of producing goods or services, including materials and labor.
Cost of goods sold = (Beginning inventory + Purchases) – Ending inventory
19. Net income
This KPI measures a company’s total income after all expenses are deducted.
Net income = Total revenues – Total expenses
20. Operating profit margin
This KPI measures a company’s income from operations as a percentage of its revenue.
Operating profit margin = [Net sales – (COGS + SG&A) / Net sales) x 100]
21. Revenue growth rate
This KPI measures the percentage increase in revenue over a specific period.
Revenue growth rate = (Current period revenue – Prior period revenue) / Prior period revenue
22. Gross margin return on investment (GMROI)
This KPI measures a company’s profitability relative to its inventory investment.
GMROI = Gross profit / Average inventory cost
23. Price-to-earnings (P/E) ratio
The P/E ratio is a financial metric that’s used to evaluate the relative value of a company’s stock by comparing its stock price to its earnings per share. It’s commonly a commonly used ratio in financial analysis and is often used by investors to assess the investment potential of a company’s stock.
P/E ratio = Market price per share / Earnings per share (EPS)
24. Sales growth rate
This KPI measures the percentage increase in sales over a specific period. It provides insight into a company’s ability to increase revenue. It’s a crucial KPI for numerous companies, as it measures the percentage change in net sales between two periods. Typically, companies compare current period sales to the corresponding period in the previous year or assess quarter-to-quarter changes in sales within the current year. A positive value signifies growth, while negative values indicate a contradiction in sales. Sales growth is an important metric for evaluating a company’s performance and gauging its progress over time.
Sales growth rate – (Current net sales – Prior period net sales) / Prior period net sales x 100
25. Customer acquisition cost (CAC)
This KPI measures the cost of acquiring a new customer. It helps businesses determine the effectiveness of their marketing and sales strategies.
Customer acquisition cost = Cost of sales and marketing / Number of new customers acquired
26. Lifetime value (LTV)
This KPI measures the total amount of revenue a customer will generate over their lifetime. It helps businesses determine the value of their customers and optimize their marketing and sales strategies.
Customer lifetime value = Customer value x Average customer lifespan
27. Average revenue per user (ARPU)
This KPI measures the average amount of revenue generated per customer. It’s a crucial metric for subscription-based businesses.
Average revenue per user = Total revenue generated during specific time period / Active users during the same period
28. Churn rate
This KPI measures the percentage of customers who stop using a product or service over a specific period. It’s also a vital metric for subscription-based businesses.
Churn rate = (Lost customers / Total customers at the start of time period) x 100
29. Burn rate
This KPI measures the rate at which a company is spending its cash reserves. It helps businesses determine how long they can continue operating before running out of cash. Burn rate is commonly employed as a KPI by startups that are incurring losses. It quantifies the rate at which a company utilizes its available cash to cover operating expenses. A higher burn rate signifies that the company is depleting its cash reserves at a faster pace, which may lead to running out of cash unless additional funding is secured. When assessing whether to provide funding, investors often scrutinize a company’s gross burn rate. Monitoring burn rate is crucial for startups to manage their cash flow effectively and ensure sustainability during their early stages of growth.
Gross burn rate = Company cash / Monthly operating expenses
30. Debt service coverage ratio
This KPI measures a company’s ability to pay its debt obligations. It’s a crucial metric for businesses with significant debt.
Debt service coverage ratio = Net operating income / total debt service (including principal and interest payments on a loan)
Let MIBAR Help You Measure KPIs That Are Most Important for Your Business
In addition to the commonly used financial metrics and key performance indicators mentioned above, companies may find value in monitoring specialized KPIs that specifically focus on various aspects of their operations, such as inventory analysis, sales performance, accounts receivable, accounts payable, and human resources.
However, manually calculating financial KPI formulas from general ledger accounts can be cumbersome, error-prone, and time-consuming. This is why many organizations opt to use software solutions to automate these calculations and consolidate all the key numbers into one centralized dashboard.
How can you do that, too? Touch base with our team at MIBAR to learn how comprehensive accounting and financial management software solutions like NetSuite offer built-in, real-time dashboards and KPIs that are tailored to different roles and functions within your company. You can easily add customized KPIs to align with your unique requirements or goals. All the information is automatically updated as the platform processes transactions and other financial data.
Also, adding a tool like Power BI to your current ERP software can provide you with enhanced KPI reporting, improved data visualization, and more.
Check out a recording of our webinar Power BI: Modern Business Analytics for the New Economy to learn more. In this webinar you’ll hear how Power BI gave Kayco an interactive, customized, and remarkably user-friendly reporting environment to provide users 24/7, cross-device and real-time access to their KPIs and data.
You can schedule a call with our team at MIBAR today to learn more!