Top 3 Financial KPIS ( key performance indicators ) and other financial metrics

Categories of Financial KPIs to measure financial performance

There are many forms of performance indicators which can help you understand your accounting software dashboard, revenue, current ratio, current assets, inventory turnover, quick ratio, costs of good sold, liquidity, etc. The most common KPIs are profitability KPIs, efficiency KPIs, liquidity KPIs, growth KPIs, etc.

Profitability KPIs

These performance indicators assess how well a business produces revenue related to its profit, equity and assets. These performance metrics are important for evaluating whether a firm is on the right track in terms of achieving its goals and enhancing its revenue.

One of the important profitability margin is gross profit margin. This margin estimates the percentage of revenue that remains after sold goods cost is subtracted. This metrics illustrates how efficiently a firm makes and sells its services and products.

Operating profit margin is another metric that assesses the portion of revenue remaining after subtracting the operating expenses like wages, rent. Keep in mind that this is calculated before adding the interest and taxes to it. It reflects how efficient a company is in generating profits from the primary business operations.

Net profit margin is the most important profitability KPI. It depicts the percentage of revenue that is remaining after the subtraction of all expenses. It includes the interest and taxes as well. Net profit margin is important is providing a detailed view about the current profit of the business.

Liquidity KPI

This performance indicator metric show cases a firm performance in meeting their short term financial aims and objectives. These metrics are essential for finding a businesses overall financial stance and making sure that a business has sufficient funds and assets as well for paying the debts.

The current ratio is a liquidity KPI that can contrast a firm’s persisting assets with its current obligations or liabilities. It assesses how easily a business can assess its short-term liabilities as compared to its short-term assets.

Normally, a ratio of 1 or more indicates that a firm has enough resources to pay its liabilities.

Another liquidity ratio is the the quick ratio. The quick ratio is considered more rigorous performance indicator metric as it removes the inventory from current assets and establishes a focus on assets that can be easily converted to cash.

The cash conversion cycle provides a measure as to the duration it takes for a firm to transform its investments in inventory directly into cash flow from the sales it generates. A shorter duration of this cycle is preferred as it showcases that a business is able to convert its inventory in to key financial revenue quite efficiently.

Efficiency KPIs

Efficiency KPIs are used to track how efficiently a firm can utilize its assets and available resources for generating earnings and manage their costs as well. Better efficiency means a kpi that measures earnings per share accurately. Better efficiency translates to better efficiency and operating performance.

One of the types of efficiency KPIs is the return on assets ratio. It depicts how successfully a business utilizes its assets for generating profit. It also assesses a firms potential for converting its assets into earnings.

A greater Return on Investment illustrates that a firm is successful in using its assets for profit generation.

The second type of efficiency kpi is the return on equity kpi. This is used to evaluate how easily a business can use its shareholder equity for producing profits. The return on equity performance indicator is significant for investors as it portrays the return on invested funds for a business.

The third type of efficiency kpi is the Asset Turnover Ratio. It tells how efficiently a business can utilize its assets to make improvements in its sales. A better asset turnover ratio depicts how successfully a firm can use its assets to generate more revenue.

Growth KPIs

A growth performance indicator can assess how effectively a business is transforming into a bigger company. These growth metrics are important to finding if a business is on the right path in terms of achieving its long term aims and objectives.

The revenue growth rate is effective in finding the total increase in the earning before interest for a specified interval of time. It can also help a company to focus on their growth and find out trends that can affect their performance in the coming times.

The EBITDA ( earnings before interest, taxes, depreciation, and amortization ) is a metric that can show how effective a company is in terms of making revenue from its core operations, which doesn’t include interest, taxes, depreciation, and amortization. It is also used to assess the performance of a firm’s business operations.

Customer Acquisition Costs can show how much it takes to acquire new customers. It is an important metric for understanding the performance of your marketing and sales department accompanied by the expansion cost of the business model.