Your business’s Key Performance Indicators (KPIs) 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.
The primary KPIs you undoubtedly use include income, expenses, gross profit, and net profit. Here are some other key indicators to track, analyze, and act upon when needed.
- Operating Cash Flow
Monitoring and analyzing your operating cash flow is essential to be able to pay for childbirth and your routine operating expenses. This KPI is also used in comparison with total capital in use – an analysis that reveals whether your operations generate sufficient cash to support investments and advance business.
Analyzing your ratio of operating cash flow-compared to the total capital- gives you deeper insight into the financial health of your business and allows you to see more factors than just profits when making capital investment decisions.
- Working Capital
The cash that is immediately available is “working capital”. Calculate your working capital excluding existing business liabilities from your existing assets. Accounts receivable, short-term investments, accounts payables, accrued expenses and loans are all part of this KPI equation.
This particularly important KPI will tell you the state of your business in terms of its existing operating funds. It indicates how far your existing assets can cover short-term finanicial liabilities.
- Current Ratio
While the working capital KPI deducts liabilities from assets, the current ratio KPI divides total assets by liabilities to make a better understanding of the solvency of your business. In other words, how well you can maintain the level of credit rating needed to grow your business.
- Debt to Equity Ratio
Debt to Equity ratio is a ratio that is calculated by taking into account the total liabilities of your business as opposed to the equity of your shareholders. This KPI indicates how well your business is financing its growth and how well you are using the shareholders’investments. The number indicates how profitable the business is. This tells you and your shareholders how much debt the business has accumulated to make it profitable. The high debt-to-equity ratio implies the practice of paying the debt by increasing debt accumulation. This critical KPI will help you focus on your financial accountability.
- LOB Revenue Vs. Target
This KPI compares your income for the line of business with the income you have planned. Tracking and analyzing real income and forecasted plan can help you understand how well a particular department performs financially. This is one of the key factors in calculating the budget variance KPI – the comparison between the projected and actual operating budget totals needed to budget more precisely for needs.
- LOB Expenses Vs. Budget
Comparing actual expenses to budgeted amounts creates this KPI. The comparison can help you understand where and how some money was spent to manage your budget more effectively. The other factor for Budget Variance KPI is Expenses vs. Budget. Understanding the amount of variance between the total assumed and total actual ratio of revenues to expenses will help you become an expert on your business performance and finances.
- Accounts Payable Turnover
Accounts Payable Turnover KPIs indicates the rate at which your business pays off suppliers. This ratio is the result of dividing your total sales expenses (expenses incurred when supplying goods and service), by your average accounts payable for that period.
This is a very informative ratio, compared to multiple periods. It may indicate that the time for paying off suppliers is increasing, it is time to take action to keep goods standing with vendors, it is time to enable your business to benefit from discounts from vendors.
- Accounts Receivable Turnover
Accounts receivable turnover KPI reflects the rate at which your business successfully collects payments due from your customers. This KPI is calculated by dividing your total sales for a period by the average accounts receivable for that period. This number may be a warning that adjustments need to be made in managing receivable to bring payment collections into the appropriate timeframes.
- Inventory Turnover
Inventory is constantly flowing in and out of your production and warehousing facilities. It is difficult to visually measure the amount of turnover. Inventory Turnover KPI lets you know the average inventory sold in a period. This KPI is calculated by dividing sales by your average inventory over the same period. The KPI gives you a picture of your company’s sales strength and production efficiency.
- Return on Equity
Regardless of what your company’s current worth is (its net worth), your current net income will determine its estimated value in the future. Thus, the ROE ratio of your business lets you know your organization’s profitability and it determines the effectiveness of its overall operational and financial management. An improved or high ROE clearly tells your shareholders that their investments are optimized to grow the business.Improved or high ROE clearly tells your shareholders that their investments are optimized to grow their business.
- Quick Ratio
Your Quick Ratio KPI measures your organization’s ability to use its highly liquid assets to meet the short-term financial responsibilities of your business immediately. It is a measurement of your company’s wealth and financial flexibility. This is understood as a more conservative estimation of the fiscal health of a business than the current ratio because the Quick Ratio calculation excludes inventories from assets.
This Quick Ratio KPI has the popular nickname of “Acid Test”. Similarly, a Quick Ratio is a quick and easy way to evaluate your company’s wealth and health. If you are a new recipient of KPIs, the Quick Ratio KPI is a good approach to take a quick look at the general health of your business.
- Customer Satisfaction
While budget-related KPIs are important, Customer Satisfaction Quantification is an indicator of a company’s potential for long term success. The Net Promoter Score (NPS) is the result of calculating different levels of positive feedback, according to very brief surveys of customer satisfaction. NPS is a simple and accurate measurement of customer retention expected rates across your revenue base, and the potential to generate referral business to grow that base.
