Top 25 Financial KPIs and Metrics You Need to Track
Financial KPIs or key performance indicators are measurable data points that give you useful insights into your business and financial data. They span just about every area of your business – from marketing to sales and everything in between.
These KPIs are also helpful in tracking and assessing the financial health as well as the financial performance of your business. In this guide, we’ll go over some of the most important financial KPIs to note in your business and investments. But first, let’s get an overview of what they are and why they matter.
What are financial KPIs and metrics?
Financial key performance indicators are KPIs that specifically relate to a company’s finances. So while you might look at your conversion rate as an important KPI, it’s not exactly a financial KPI. Financial KPIs include things more directly related to your capital and assets. These could be metrics involving profitability, cash flow, liquidity, revenue growth, and even valuation for publicly traded companies.
Financial KPIs and metrics are important for a few reasons:
- They can help you stay in business – Running out of cash is the primary reason why 29% of small businesses fail, according to one analysis. When you’re on top of your financial metrics, you can spot and fix cash flow problems before they drain your business completely.
- They can help you make informed decisions – Better data means you can make more informed decisions about your business and strategies.
- They can fuel your business growth – What if you may have access to more capital than you realize? In such scenarios, financial KPIs can reveal the true picture and help you make investments to further your business and profitability.
What to consider when creating your financial KPI Dashboard
There are so many financial KPIs to consider that it can be tough to know where to focus. So, when you sit down to list out the financial metrics that are important to you and your business, first ask yourself “why?”
Essentially, you want to clearly define measurable business goals you want to achieve in a given timeframe. Based on that, you must select your metrics or KPIs that will measure your progress against those goals. For example, if your goal is to set up another store in the next six months, you’ll want to focus on things like increasing profits and decreasing debts.
Of course, your goals need to be realistic and feasible. They must also be quantifiable, and in a way that’s not too burdensome and tedious. For easier tracking of your financial KPIs, use a financial reporting software that can automate the process so you don’t have to spend a lot of time managing it yourself.
The top financial KPIs and metrics you should know of
Profitability KPIs and metrics
1. Gross profit
Gross profit is the total revenue your business makes after you’ve accounted for all the expenses associated with providing your goods and/or services. Those expenses are also referred to as the cost of goods sold (COGS).
Gross profit formula:
Gross profit = total revenue – COGS
2. Gross profit margin
The gross profit margin, or gross margin, is similar to the gross profit in that it tells you how much money you actually make. However, the gross profit margin is different in that it represents your profit as a percentage, essentially telling you how much each sale contributes to your profit.
Gross profit margin formula:
Gross profit margin = (total sales revenue – COGS) / total sales revenue
3. Net profit
Net profit, or net income (NI) or net earnings, tells you how much money you’ve made after you’ve accounted for all expenses associated with selling your goods/services, as well as tangential and indirectly related operating costs. Gross profit only accounts for COGS, while net profit also includes administrative costs, taxes, and operating costs – essentially the total cost of keeping your business running.
Net profit formula:
Net profit = revenue – expenses – taxes – interest
4. Net profit margin
Your net profit margin is a percentage representation of your net income. It tells you the percentage of your earnings that contribute to your profitability as it relates to net income.
Net profit margin formula:
Net profit margin = (revenue – expenses – taxes – interest) / revenue
5. Operating profit margin
The operating profit margin sits somewhere in between gross profit margin and net profit margin. Operating profit accounts for expenses related to production and COGS, but not related to taxes and interest.
Operating profit margin formula:
Operating profit margin = operating income / net sales
Cash flow KPIs and metrics
6. Cash ratio
Your cash ratio, or cash asset ratio, shows how much of your assets are readily liquefiable. The cash ratio indicates your ability to pay off short-term financial liabilities and make cash investments.
Cash ratio formula:
Cash ratio = current assets – inventory / current liabilities
7. Current ratio
The current ratio indicates your ability to liquefy cash and assets in the next year, accounting for liabilities like debts and accounts payable. Your current ratio is similar to your cash ratio in that it indicates how readily available your cash and assets are.
Current ratio formula:
Current ratio = current assets / current liabilities
8. Quick ratio
A quick ratio, or acid test ratio, evaluates whether your business has enough liquid assets to cover all your liabilities, minus your inventory. The quick ratio calculates a dollar amount for your company’s liquid assets that can cover every dollar of your current liabilities. The higher the ratio, the more liquid capital you can access.
Quick ratio formula:
Quick ratio = (current assets – inventory) / current liabilities
9. Debt-to-equity ratio
The debt-to-equity ratio looks at your debt and how much equity you use to operate your business. This financial KPI basically tells you how much debt you’re regularly using or taking out to keep the wheels turning in your business.
Debt-to-equity ratio formula:
Debt-to-equity ratio = total debt / shareholders’ equity
10. Debt ratio
Your debt ratio tells you how many of your assets were acquired and funded by debt. If your debt ratio is more than 1, you have more debt than assets.
Debt ratio formula:
Debt ratio = total debt / total assets
11. Cash conversion cycle
The cash conversion cycle (CCC), or the net operating cycle, tells you how long it takes to take your assets from investment through to income. CCC calculates the period of time it takes to turn supplies and materials into a product or service, sell them, and receive payment for said products/services. The lower your CCC, the faster you turn inventory into cash.
Cash conversion formula:
CCC = days inventory outstanding + days sales outstanding – days payable outstanding
12. Accounts payable turnover
Accounts payable (AP) indicates how much credit you owe, and accounts payable turnover measures how quickly you pay those lines of credit. Your AP may include payments owed to vendors, suppliers, landlords, taxes, software subscriptions, and other expenses in your business.
Accounts payable turnover formula:
AP turnover ratio = average number of days / 365
13. Accounts receivable turnover
While AP tells you how much you owe, accounts receivable (AR) tells you how much you are owed. So your AR turnover ratio is calculated by dividing the net value of your credit sales by your average AR in a given period. This financial KPI indicates how quickly you receive your owed capital.
Accounts receivable turnover formula:
AR turnover ratio = net credit sales / average accounts receivable
14. Operating cash flow
Operating cash flow (OCF) shows you the total amount of money you generate for your business through normal day-to-day operations. OCF doesn’t include gains from things like investments or appreciation. Your OCF tells you how self-sufficient your business is from a financial standpoint and tells you whether it can continue to run profitably without additional capital.
Operating cash flow formula:
OCF = operating income + depreciation – taxes + change in working capital
15. Working capital
Working capital, or net working capital (NWC), measures how many assets you have in comparison to your liabilities (or financial obligations). You can use it to determine how much capital you have readily available for use and make investments in your business.
Working capital formula:
Working capital = current assets – current liabilities
Valuation KPIs and metrics
16. Earnings per share
Earnings per share (EPS) is a financial KPI applicable to publicly traded companies and corporations. It tells you how much profit a company makes for each share of its stock. This metric is an indicator of profitability.
Earnings per share formula:
EPS = net profit / outstanding shares of common stock
17. Return on equity
While earnings per share (EPS) focuses on the company’s earnings, the return on equity (ROE) focuses on shareholder earnings. It measures how much money shareholders make from the company stock they own. The higher the ROE, the better the investment for the shareholder.
Return on equity formula:
ROE = net income / shareholder equity
18. Return on assets
Return on assets (ROA) puts the focus back on the company. While ROE measures how much shareholders gain from their owned stock, ROA tells you how profitable the company is. ROA accounts for the company’s owned assets, and measures how efficiently and effectively a company is using its assets to drive profitability.
Return on assets formula:
ROA = net income / total assets
19. Price-to-earnings ratio
The price-to-earnings (P/E) ratio, or PER, is a way to objectively assess the accuracy of a publicly-traded company’s valuation. The metric gives you a measurable comparison of how much a company’s stock costs versus how much it typically earns shareholders. This is one indicator that tells you whether the company’s stock is a viable investment.
Price-to-earnings ratio formula:
P/E = share price / earnings per share
20. Price-to-book value ratio
This ratio (also called the P/B ratio) compares your company’s market value with its book value. The market value accounts for what’s going on in the market and with the company’s shares, while the book value is based on the company’s own accounting records and balance sheets.
Price-to-book value ratio formula:
P/B ratio = market price per share / book value per share
21. Dividend yield ratio
The dividend yield ratio tells you how much a company pays out in dividends to its shareholders each year, represented as a percentage. As an isolated financial KPI, it doesn’t tell you much, but you can get a more accurate picture of a potential investment when you look at the dividend yield ratio in relation to other metrics.
Dividend yield ratio formula:
Dividend yield = annual dividends per share / current share price
Revenue KPIs and metrics
22. Operating income
Operating income is how much money you make from your typical day-to-day business operations. The operating income accounts for all the cash inflow and deducts standard operating expenses like rent, wages, etc. When you measure and track operating income, you’ll see how self-sufficient your business is at generating its own cash flow.
Operating income formula:
Operating income = gross income – operating expenses
23. Earnings before taxes
Earnings before taxes (EBT) is pretty much exactly what it sounds like: it takes all of your company’s income and subtracts all expenses except for taxes.
Earnings before taxes formula:
EBT = sales revenue – COGS – operating expenses – (depreciation and amortization)
24. Earnings before interest and taxes
Earnings before interest and taxes (EBIT) is very much like EBT, except it excludes interest as well as taxes from your expenses.
Earnings before interest and taxes formula:
EBIT = NI + interest + taxes
25. Earnings before interest, taxes, depreciation, and amortization
Earnings before interest, taxes, depreciation, and amortization (also called EBITDA) is like EBT and EBIT, except it also excludes depreciation and amortization from expenses.
Earnings before interest, taxes, depreciation, and amortization formula:
EBITDA = NI + interest + taxes + depreciation + amortization
It’s important to track your financial KPIs over time to establish a benchmark for your own business. These can provide valuable insights into the financial health of your business in real-time.
Remember that you are your biggest competitor. So, use these metrics to measure the success of your strategies over a timeframe and improve both your business model and financial performance.
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