Using financial KPIs can help you measure the efficiency of your business. One of the most basic KPIs is return on investment, which measures the money you invest versus the money you earn. Using this metric, you can determine whether your investment is a worthwhile one or not. It also allows you to evaluate the efficiency of different investments. You can use it to determine how much money you should put into a particular project or business. Using this KPI, you can choose the best investment options for your business.
Another important financial KPI is the price-to-sales ratio, which shows the value of a company’s stock in relation to its revenue. This metric can help you determine the value of your company compared to its competitors. If you’re looking for a good measure of a company’s current value, you should focus on this metric.
Similarly, the total-debt-to-equity ratio will tell you how efficiently a company is using the money it has raised from shareholders. A lower number means the company is relying less on creditors and is using its assets more efficiently. A high ratio could limit your business’s ability to obtain loans and fund expansion.
Financial KPIs are important to understand and monitor for a healthy business. They should be discussed and measured regularly. They can help you reach your strategic goals. Some of these metrics include your cash on hand, your cash flow statement, and your balance sheet. Using a financial KPI dashboard can help you monitor the financial health of your business.
Another metric that is important for small businesses is Accounts Receivable Turnover, which shows how fast your customers pay you. This metric can be broken down by division or business department. You can see how long it takes for customers to pay you after purchasing a certain amount of product or service. If your turnover rate is high, you might have trouble paying your expenses.
Another key metric is the working capital ratio. This metric measures your company’s ability to meet its short-term liabilities. It is calculated by dividing your current assets by the total amount of current liabilities. A high working capital ratio is an indication that your business is not healthy. Similarly, a high current accounts receivable ratio means that your company has trouble dealing with long-term debtors.
Another important financial metric is operating cash flow, which shows how much money you are generating through your daily operations. You should evaluate this metric along with your revenue to get a better idea of how your business is doing. By using this metric, you can assess how well your products or services are performing.
Another financial KPI to consider is gross profit margin. This metric reveals how effectively your company is handling expenses, and it is usually calculated as a percentage. A higher number means that your business is more profitable than competitors.