Six Financial KPIs that Indicate Financial Strength of Your Business

Financial KPIs

Business KPIs are quantitative assessment measures used by the management of organizations to assess and review their performance. These key indicators ensure that the business remains on track and can achieve its objectives.

Varied types of KPIs have been formulated - those that monitor the financial health of the company are known as financial KPIs, while others that help to ensure your operations are on the schedule are known as operational KPIs. The following pointers indicate some of the financial KPIs that provide real-time status on vital financial figures of the company.

Current Ratio:

This is a measure of a company's ability to make meet its financial liabilities within one year. It is calculated by dividing the current assets of the company by the current liabilities. The ratio should ideally lie between 2:1. Anything less than 1.5:1 is a worrying sign for the company.

Quick Ratio: 

Quick ratio reflects the ability of the company to make immediate payment for its short-term liabilities. This ratio is more relevant to the financial health of the company than the current ratio as the latter reflects the company’s ability to make these payments within one year, whereas the quick ratio refers to the company's ability to meet its operational expenses.

Return on Equity:

This KPI measures the company’s success in generating profits for every dollar invested in the business by the shareholders. Net income divided by shareholder equity gives the figure of return on equity.

Operating Cash Flow: Operating cash flow indicates revenue generated by the company through its regular business operations. A positive cash flow indicates that the company does not need external finance to pay for its operating expenses. The figure is obtained by making adjustments to the net income for items such as depreciation, inventory, and account receivables.

Gross Profit Margin: 

This figure indicates the balance in revenue after considering the cost of goods sold. This KPI is a good indicator of the financial robustness of the company.

Working Capital: 

This KPI indicates whether the company has sufficient current assets available to meet its short-term financial liabilities. It is a figure derived by subtracting the company’s current liabilities from its current assets.  

Financial KPIs throw actionable insights into a company's financial health and helps the management take corrective actions if needed.

Comments

Post a Comment

Popular posts from this blog

How to Determine Your Business KPIs

Image
Business KPIs or key performance indicators can help your organization achieve its goals. It should be noted that KPIs are related to your goals and therefore may significantly vary from one business to another and also, from one department to another within the same business. Thus, determining the right KPIs crucial to your business is important. Let’s see how you can determine your operational and financial KPIs : Your goals Business KPIs should be aligned to your goals. What is it that you want to achieve? It could be sales growth, cost reduction, improvement in returns on investment, customer service, or more. Let’s say you are in the restaurant business. An important KPI for you would be table occupancy and customer satisfaction. Cut the clutter Instead of collecting data randomly, it is better to cut the clutter and focus on meaningful data. Focusing on the core business goals and selecting 2 to 4 operational KPIs would be enough. So, you may choose 2 to 4 financial KPIs such...
Read more

Understanding the Importance of Data Analytics for Business

Image
To ensure that your business is steered towards growth, you need to make several key decisions. Business metrics offer deep insights into your business and help you make key decisions such as new product launch, planning for expansion, sales, budgeting, inventory, resource planning, and more. What are metrics in business? Metrics in business measure and evaluate business health and determine the success or otherwise of the business. For example, gross margin, sales, net profit are some of the metrics in business. These metrics are used to quickly gauge an insight into business performance. Before you start monitoring business KPI , you need to understand that what is relevant to your business. For example, one of the important metrics for a hotel industry or an airline industry would be occupancy rate, whereas an online store will pay more attention to customer engagement, website traffic, engagement, and more.  In short, there are several types of business metrics, but you must un...
Read more

5 Ways How Manufacturing Analytics and an up-to-date Manufacturing Dashboard will Improve Your Business

Image
Successful manufacturing businesses always look for innovative methods to streamline their operations. Previously, this used to entail spending months first evaluating each process, conducting tests and retests new ideas, and finally making the necessary changes. However, this perspective could burden manufacturers with heavy costs and huge efforts, before they get a chance to improve. So is there a way to increase the speed and efficiency of manufacturing operations? Take a look at these 5 ways that manufacturing analytics can help improve your production line and fine-tune the operations: 1. Learn about the Supply channels:  Although the purchasing is regularly done, few companies give much thought to vendor selection. Using manufacturing metrics to understand supply chains and how each vendor functions can easily help improve production efficiencies and even bring down related costs. 2. Create automated procedures with manufacturing data analytics:  Regardless of the size ...
Read more