Critical KPIs Every Business Should Track
As a business owner, it's important to track your company y's key performance indicators (KPIs). This allows you to see how your business is performing and identify areas of improvement. In this blog post, we'll discuss what KPIs are and how to choose the right ones for your business. KPIs are important for businesses of all size.
One common misconception about KPIs is that they're only important for large businesses. This couldn't be further from the truth!
KPIs are essential for businesses of all sizes. Whether you're a solopreneur or a Fortune 500 company, tracking KPIs can help you improve your bottom line.
There are a number of different KPIs businesses can track, depending on their industry and goals.
Some common KPIs include sales figures, customer satisfaction rates, employee productivity, and operational costs. Choosing the right KPIs for your business will depend on your unique situation.
KPIs can help you improve your business.
By tracking KPIs, you can get a clear picture of how your business is performing. This information can help you identify areas of improvement. Once you know where your business needs to improve, you can put systems in place to make those improvements.
- If you're not tracking KPIs, you're missing out on valuable information about your business.
- If you're not tracking KPIs, you're missing out on valuable insights about your company. KPIs can help you make informed decisions
18 Financial KPIs Every Business Owner Should Monitor – And How to Track Them
- Net Profit
It's no secret that the key to a successful business is generating more revenue than you spend. This is commonly referred to as net profit. With that in mind, let's take a look at some of the ways you can increase your net profit.
1. One way to increase your net profit is to increase your revenue. This can be done by finding new customers or increasing your prices.
2. Another way to increase your net profit is to decrease your expenses. This can be done by cutting costs or finding cheaper alternatives for the things you need.
3. You can also increase your net profit by increasing your efficiency. This means doing more with less and making the most of your resources.
4. Finally, you can also increase your net profit by diversifying your income. This means having multiple streams of income so that you're not relying on just one.
By following these tips, you can increase your net profit and your chances of success. - Net Profit Margin
Net profit margin is a key financial ratio for business owners and investors to assess a company's profitability. A company's net profit margin percentage indicates how much of its revenue is left over after all expenses are paid. For example, a company with a net profit margin of 10 percent means that it has $0.10 of profit left over for every dollar of revenue.
Net profit margin is a key financial ratio for business owners and investors to assess a company's profitability. A company's net profit margin percentage indicates how much of its revenue is left over after all expenses are paid. For example, a company with a net profit margin of 10 percent means that it has $0.10 of profit left over for every dollar of revenue.
To increase net profit margin, a company can focus on revenue growth or expense reduction (or both). For example, a company might invest in new product development or marketing initiatives to drive revenue growth, or it might streamline its operations to reduce costs.
While net profit margin is a useful metric, it's important to keep in mind that it's just one financial indicator of a company's overall health. Other important financial ratios include gross profit margin, return on equity, and debt-to-equity ratio. - Gross Profit Margin
Gross profit margin is a financial ratio that measures the proportion of money left over from sales revenue after accounting for the cost of goods sold.
While a high gross profit margin is generally seen as a good sign, it's important to keep in mind that it's just one number in a company's financial statement. Factors such as operating expenses, interest expenses, and taxes can eat into a company's bottom line even if it has a high gross profit margin.
Looking beyond the gross profit margin, analysts and investors will often examine a company's operating margin and net margin. These ratios take into account a company's other expenses, providing a more holistic picture of profitability. - Operating Profit Margin
An operating profit margin is a financial metric used to assess a company's profitability. It is calculated by dividing a company's operating profit by its revenue. A company's operating profit is its net income before interest and taxes.
Operating profit margin is a useful metric for comparing companies in the same industry because it shows how much profit a company makes from its operations after accounting for all of its expenses. A high operating profit margin indicates that a company is efficient and generates a lot of profit from its operations.
There are a few things to keep in mind when interpreting a company's operating profit margin. First, a company's operating profit margin can be affected by one-time items that are not reflective of its normal operations. Second, companies in different stages of their life cycle will have different operating profit margins. For example, a startup company is likely to have a lower operating profit margin than a more established company.
Operating profit margin is a useful metric for comparing companies in the same industry because it shows how much profit a company makes from its operations after accounting for all of its expenses. A high operating profit margin indicates that a company is efficient and generates a lot of profit from its operations.
In addition to its usefulness in evaluating a company's financial health, the operating profit margin can also be a useful tool in determining the profitability of a company's products and operations. A high operating profit margin indicates that a company is able to generate a large amount of profit from its operations, while a low operating profit margin indicates that a company's products and operations are not as profitable.
Operating profit margin can therefore be a useful tool for investors to use when considering which companies to invest in. Companies with high operating profit margins are generally more profitable and have more room to grow than companies with low operating profit margins.
Operating profit margin can also be useful for companies to use when evaluating their own financial performance. Companies with high operating profit margins can use their profits to reinvest in their business and grow their operations. Meanwhile, companies with low operating profit margins may need to find ways to increase their profitability in order to continue growing their business. - EBITDA - Earnings before interest, taxes, depreciation, and amortization
What is EBITDA?
EBITDA stands for "earnings before interest, taxes, depreciation, and amortization." It's a measure of a company's profitability that strips out certain expenses, such as depreciation and amortization, which are considered non-operational.
EBITDA can be a useful metric for evaluating a company's financial performance, but it's important to understand its shortcomings. For instance, EBITDA doesn't account for a company's capital expenditures, which can be a significant expense. Additionally, EBITDA doesn't reflect a company's tax liability, which can also be a significant expense.
EBITDA is just one metric that should be considered when evaluating a company's financial performance. It's important to understand its strengths and weaknesses in order to get a complete picture of a company's profitability. - Revenue Growth Rate
A company's revenue growth rate is a metric that is closely watched by investors and analysts. A high revenue growth rate generally indicates that a company is doing well and is increasing its market share. Revenue growth is one of the most important factors in determining a company's stock price.
However, there are other factors that are just as important, if not more important, in determining a company's stock price. These include earnings growth, cash flow, and profitability. While revenue growth is an important metric, it is not the only metric that should be considered when making investment decisions. - Total Shareholder return (TSR)
TSR is a comprehensive measure of shareholder value that represents the total return to shareholders from owning a stock, including both capital gains and dividends. While TSR is a widely used metric, it has several shortcomings that investors should be aware of.
One major criticism of using TSR as a measure of shareholder value is that it does not account for the timing of returns. For example, a stock that doubles in value over the course of five years will have the same TSR as a stock that doubles in value and then declines by 50%. This can be a problem if the stock that has the higher TSR is actually a riskier investment.
Another issue with TSR is that it does not account for the reinvestment of dividends. If a stock has a high dividend yield, the TSR will be artificially inflated. For example, a stock with a 5% dividend yield and a 10% TSR would have a return of 15% if all dividends were reinvested. However, if the investor only received the 5% dividend yield, the return would be 10%.
Finally, TSR does not account for changes in the share price of a company due to share repurchases. A share repurchase reduces the number of shares outstanding, which increases - Economic value added (EVA)
EVA is a measure of a company's financial performance that takes into account the opportunity cost of the capital invested in the company.
EVA essentially measures the true economic profit of a company.
While EVA is a valuable metric, it is important to keep in mind its limitations.
EVA only tells us about a company's financial performance and does not take into account other important aspects of a company's operations such as employee morale or customer satisfaction. In addition, EVA may incentivize companies to take on too much risk in an effort to boost their EVA numbers.
Despite its limitations, EVA is a helpful tool for investors to use when considering whether to invest in a company. - Return on investment (ROI)
There are a number of factors to consider when assessing the ROI of an investment. The most important factor is the expected rate of return. The expected rate of return is the amount of money that an investor expects to earn on an investment over a period of time. Another important factor to consider is the risk associated with the investment.
The risk is the potential for loss on an investment. The higher the risk, the higher the potential for loss. The last factor to consider is the time frame. The time frame is the period of time over which an investment will be held.
A higher expected rate of return is often associated with a higher degree of risk. The riskier an investment is, the higher the potential for loss. As such, investors must weigh the expected rate of return against the risk before making any investment decisions.
Investors must also consider the time frame of an investment. The time frame is the period of time over which an investment will be held. A longer time frame is often associated with a higher degree of risk. The reason for this is that there is more time for something to go wrong. However, a longer time frame also provides the opportunity for the investment to grow and generate a higher return. - Return on capital employed (ROCE)
There are a few different ways to look at return on capital employed (ROCE). The most common way to measure ROCE is to divide net operating profit by average capital employed. This measures the amount of profit generated for each dollar of capital invested.
ROCE is a popular metric because it is a good way to measure the efficiency of a company's capital. It is also a good way to compare the profitability of different companies.
ROCE is not without its critics. Some people argue that ROCE can be misleading because it does not take into account the riskiness of a company's investments.
In this article, we will take a look at ROCE and some of the different ways it can be used. We will also discuss some of the criticisms of ROCE.
There are a few different ways to look at return on capital employed (ROCE). The most common way to measure ROCE is to divide net operating profit by average capital employed. This measures the amount of profit generated for each dollar of capital invested.
ROCE is a popular metric because it is a good way to measure the efficiency of a company's capital. It is also a good way to compare the - Return on assets (ROA)
ROA is a financial ratio that shows how much profit a company generates compared to the total resources it has. A company's ROA is determined by dividing its net income by its total assets. A high ROA indicates that a company is generating a lot of profit compared to its assets, while a low ROA indicates that a company is not generating enough profit compared to its assets.
ROA is an important financial ratio to consider when evaluating a company's profitability. However, it is important to keep in mind that ROA is just one factor to consider when assessing a company's overall profitability. Other factors such as return on equity (ROE) and return on capital (ROC) should also be considered. - Return on equity (ROE)
ROE is a key metric when it comes to evaluating a company's stock.
There are a few things to take into account when looking at a company's ROE. The first is the company's debt-to-equity ratio. A higher ratio means that the company is more leveraged, and therefore has less equity to reinvest in the business. This can lead to a lower ROE.
The second thing to look at is the company's profit margin. A higher profit margin means that the company is more efficient at turning revenue into profit. This is one of the main drivers of ROE.
Lastly, you need to look at the company's turnover. This is the rate at which the company is reinvesting its profits back into the business. A higher turnover means that the company is reinvesting more, and therefore can potentially grow at a faster rate.
Looking at all of these factors, you can get a good sense of how well a company is doing and whether or not its stock is a good investment. - Debt-to-equity (D/E) ratio
Importance:
The D/E ratio is a key metric in financial analysis, as it provides a snapshot of a company's financial leverage. A high D/E ratio indicates that a company is highly leveraged and is therefore more risky. Conversely, a low D/E ratio indicates that a company has less debt and is therefore less risky.
D/E ratios can be affected by a number of factors, including a company's operating income, interest expense, and tax rate. Furthermore, D/E ratios can vary depending on the industry in which a company operates. For example, companies in the utility and healthcare industries tend to have higher D/E ratios than companies in other industries.
D/E ratios are important not only to financial analysts, but also to potential investors. When considering investing in a company, an investor will often look at the D/E ratio to gauge the riskiness of the investment. - Cash Conversion Cycle (CCC)
The cash conversion cycle (CCC) is a financial metric that is used to assess the solvency of a company. It measures the time that it takes for a company to convert its inventory into cash.
A company's CCC can be affected by a number of factors, including its inventory management, accounts receivable, and accounts payable.
Below, we'll take a closer look at each of these factors and how they can impact a company's CCC.
Inventory Management
One of the biggest factors that can impact a company's CCC is its inventory management. If a company has too much inventory, it will tie up cash that could be used to pay other debts or expenses. On the other hand, if a company doesn't have enough inventory, it may miss out on sales or opportunities.
Accounts Receivable
Another factor that can impact a company's CCC is its accounts receivable. This is the amount of money that is owed to the company by its customers. If a company has a high accounts receivable, it means that it is owed a lot of money by its customers. This can tie up cash that could be used for other purposes.
Accounts Payable
The final factor that can impact a company's CCC is its accounts payable. This is the amount of money that the company owes to its suppliers. If a company has a high accounts payable, it means that it owes a lot of money to its suppliers. This can impact cash flow and, as a result, the CCC. - Working Capital Ratio
Having a strong working capital ratio is critical for any business. This ratio is a key indicator of a company's financial health and stability.
Working capital is the difference between a company's current assets and current liabilities. A company's working capital ratio is calculated by dividing its working capital by its total assets.
A high working capital ratio indicates that a company is able to meet its short-term obligations. A low working capital ratio may indicate that a company is at risk of defaulting on its obligations.
There are a few things that can impact a company's working capital ratio. One is the level of inventory. A high level of inventory can tie up a lot of cash and result in a lower working capital ratio. Another is the level of accounts receivable. A high level of accounts receivable means that a company is waiting longer to get paid for its products or services. This can also result in a lower working capital ratio.
There are a few ways to improve a company's working capital ratio. One is to reduce the level of inventory. This can free up cash that can be used to pay down debt or be used for other purposes. Another is to increase the level of accounts receivable. This can be done by offering discounts for early payment, or by extending the credit terms to customers. Both of these methods can help to improve the working capital ratio. - Operating Expense Ratio (OER)
The operating expense ratio is a key metric for evaluating a company's financial performance. A high OER can indicate that a company is inefficient and is not generating enough revenue to cover its operating expenses. A low OER, on the other hand, can indicate that a company is doing a good job of controlling its costs.
There are a few ways to improve your OER. One way is to increase your revenue. This can be done by expanding your customer base, increasing your prices, or finding new sources of revenue. Another way to improve your OER is to reduce your operating expenses. This can be done by streamlining your operations, negotiating better terms with your suppliers, or eliminating unnecessary costs.
The operating expense ratio is an important metric for evaluating a company's financial performance, but it is just one metric. To get a complete picture of a company's financial health, you need to look at a variety of metrics, including the OER. - CAPEX to sales ratio
What is CAPEX to sales ratio?
The CAPEX to sales ratio is a financial ratio that measures a company's capital expenditures as a percentage of its sales revenue.
Why is this ratio important?
This ratio is important because it shows how much a company is investing in physical assets relative to its sales. A high CAPEX to sales ratio may indicate that a company is investing heavily in growth, while a low CAPEX to sales ratio may indicate that a company is not investing enough in growth.
What are some factors that can affect a company's CAPEX to sales ratio?
Some factors that can affect a company's CAPEX to sales ratio include the company's size, growth rate, and industry.
What are some implications of a high or low CAPEX to sales ratio?
Some implications of a high or low CAPEX to sales ratio include the following:
If a company has a high CAPEX to sales ratio, it may be investing too much in physical assets and not enough in other areas such as research and development, marketing, or customer service. This could lead to a decrease in sales and profit margins.
- Price/earnings ratio (P/E) ratio
The P/E ratio is one of the most commonly used tools for stock analysis.
P/E ratios can be used to compare the relative value of different stocks, as well as to compare the value of the same stock at different times.
P/E ratios can also be used to predict future stock prices.
In order to understand how to use P/E ratios, it is first important to understand what they represent.
P/E ratios are simply the ratio of a company's stock price to its earnings per share.
For example, if a company's stock price is $100 and its earnings per share are $10, then its P/E ratio would be 10.
The higher the P/E ratio, the more expensive the stock is relative to its earnings.
P/E ratios can be used to compare the relative value of different stocks.
For example, if two companies have the same earnings per share, but one company's stock price is $100 and the other company's stock price is $50, then the first company's P/E ratio would be twice as high as the second company's.
This means that the first company's stock is more expensive relative to its earnings than the second company's stock.
One reason why a company's stock might be more expensive relative to its earnings is that the company is growing at a faster rate. If a company is expected to grow its earnings at a faster rate than its competitors, then investors would be willing to pay a higher P/E ratio for that company's stock.
Another reason why a company's stock might be more expensive relative to its earnings is that the company has a lower debt-to-equity ratio. A lower debt-to-equity ratio means that the company has less debt relative to its equity, which is a good thing for investors because it means that the company is less likely to default on its debt obligations.
A final reason why a company's stock might be more expensive relative to its earnings is that the company has a history of paying high dividends. Dividends are a way for a company to distribute its profits to investors, and investors tend to value companies that have a history of paying high dividends.
Conclusion on Financial KPIs:
There are several important financial KPIs that business owners, investors and analysts use to evaluate companies and or manage company operational performance. Each of these ratios provides valuable information about a company and can be used to compare the relative value of different stocks and for benchmark comparisons.
Running a business can be tough and working capital finance can often seem like a headache. GIC Capital offers a wide range of working capital solutions to meet the needs of small businesses. We can help you with everything from invoice financing to merchant cash advances. Learn more about our working capital solutions here: Click Get Started Now