Running a successful business is all about managing and understanding your finances. Knowing the right financial KPIs and metrics to measure can be a daunting task—especially if you’re a new business or you’re new to the industry. Sure, tracking revenue is important, but there are other factors that need to be considered too. With so many variables at play, determining what you should monitor can seem overwhelming.
But there is some good news. With the proper guidance—like this post—you can quickly upskill your financial knowledge and identify exactly which financial data needs to be monitored on an ongoing basis for optimal business performance. In this article, you’ll discover the 21 essential finance metrics and KPIs you should incorporate into your real-time financial dashboard and reports to ensure you keep tabs on the health of your organization's finances 365 days out of the year.
Revenue growth rate measures the percentage increase in a company's revenue over a specific period of time. It helps you assess your business's ability to generate more sales and expand. Tracking revenue growth rate allows you to evaluate the effectiveness of your sales and marketing strategies and identify opportunities for improvement. It also provides insights into the overall demand for your products or services in the market.
Gross profit margin indicates the profitability of your core business operations by measuring the percentage of revenue that remains after deducting the cost of goods sold (COGS). This financial metric helps you understand how efficiently you are producing and selling your products or services. By tracking gross profit margin, you can assess the impact of pricing strategies, production costs, and inventory optimization on your bottom line. A higher gross profit margin indicates better cost control and pricing effectiveness.
Net profit margin is a key metric that shows the percentage of revenue that remains as net profit after deducting all expenses—including operating costs, taxes, and interest. It gives you an insight into your company's overall profitability and efficiency. By monitoring this financial KPI, you can evaluate your ability to generate profits from your revenue streams, control expenses, and manage your resources effectively. A higher net profit margin indicates stronger financial performance and sustainability.
Return on investment (ROI) is a critical financial metric that measures the profitability of an investment or project. It compares the gain or loss from an investment relative to its cost, and may often be utilized in marketing and sales strategies, however it’s a metric that applies to every aspect of your business. Learning how to calculate ROI helps you assess the effectiveness of your investments and determine whether they are generating sufficient returns. By tracking ROI, you can prioritize and allocate resources to projects or investments with the highest potential for profitability. It also enables you to evaluate the efficiency of your capital allocation and make informed decisions to maximize returns.
The current ratio is a liquidity metric that assesses a company's ability to meet its short-term financial obligations. It is calculated by dividing current assets by current liabilities. The current ratio indicates whether a company has enough current assets (such as cash, inventory, and accounts receivable) to cover its current liabilities (such as accounts payable and short-term debts). Tracking this financial KPI helps you evaluate your financial stability and determine if you have sufficient resources to handle immediate financial obligations. A higher current ratio indicates better short-term liquidity and financial health.
The debt-to-equity ratio is a financial leverage ratio that compares a company's total debt to its total equity. It provides insights into the proportion of debt and equity financing used to fund a company's operations and investments. Measuring this financial metric is important because it helps assess a company's financial risk and solvency. A higher ratio indicates that a company relies more on debt financing, which can increase financial obligations and interest payments. On the other hand, a lower ratio indicates a more conservative capital structure and lower risk. Monitoring the debt-to-equity ratio allows you to evaluate your company's financial stability and make informed decisions regarding inventory planning, debt management, and capital structure.
Working capital represents the difference between a company's current assets and current liabilities. It reflects the amount of liquid assets available to cover day-to-day operations and short-term financial obligations. Measuring this financial KPI is crucial because it indicates a company's ability to meet its immediate financial needs. Positive working capital indicates that a company has enough resources to pay off its short-term liabilities, while negative working capital suggests a potential liquidity issue. By monitoring working capital, you can ensure that your business has sufficient funds to support ongoing operations, manage cash flow effectively, and seize growth opportunities.
Accounts receivable turnover measures the efficiency of a company's credit and collection policies by calculating the number of times accounts receivable is collected within a specific period. This financial KPI shows how quickly a company collects payments from its customers. Monitoring accounts receivable turnover helps you assess the effectiveness of your credit terms, billing practices, and collection efforts. A higher turnover ratio indicates that your company is efficiently collecting payments and managing credit risk. Conversely, a lower ratio may suggest potential issues with customer payments or credit management. By tracking accounts receivable turnover, you can improve cash flow, reduce bad debt, and optimize your credit management strategies.
Accounts payable turnover measures how efficiently a company pays its suppliers and vendors by calculating the number of times accounts payable is paid within a specific period. It indicates the speed at which a company settles its outstanding obligations. Monitoring accounts payable turnover is important because it helps evaluate your company's payment practices and cash management. A higher turnover ratio indicates that you are effectively managing your payables and maintaining good relationships with suppliers. Conversely, a lower ratio may indicate potential cash flow constraints or delays in payment processing. By tracking accounts payable turnover, you can optimize your cash flow, negotiate favorable payment terms, and maintain strong supplier relationships.
Inventory turnover measures the efficiency of inventory management by calculating the number of times inventory is sold or replenished within a specific period. It shows how quickly inventory is converted into sales and replaced. Monitoring this financial KPI is crucial because it helps you optimize inventory levels, reduce carrying costs, and avoid stockouts costs or overstocking. A higher turnover ratio indicates that you are effectively managing your inventory and minimizing excess stock. On the other hand, a lower ratio may suggest slow-moving or obsolete inventory. By tracking inventory turnover, you can improve cash flow, enhance operational efficiency, and make informed decisions regarding procurement, production, and sales strategies.
The cash conversion cycle (CCC) is a financial metric that measures the time it takes for a company to convert its investments in inventory into cash flow from sales. It represents the duration from when cash is paid for inventory until the time the company receives cash from the sale of the inventory. Measuring the cash conversion cycle is important because it helps assess the efficiency of a company's working capital management. By monitoring CCC, you can identify bottlenecks in the cash flow cycle, optimize inventory levels, improve payment terms with suppliers, and enhance overall liquidity.
Return on assets (ROA) is a profitability ratio that measures the company's ability to generate earnings from its total assets. It indicates how efficiently a company utilizes its assets to generate profits. Measuring ROA is important because it provides insights into the company's overall efficiency and productivity. A higher ROA suggests that the company is generating more profits per dollar of assets invested. By tracking ROA, you can assess the effectiveness of asset allocation, identify areas for improvement in operational efficiency, and compare the company's performance with industry benchmarks.
Return on equity (ROE) is a financial ratio that measures the profitability of a company in relation to its shareholders' equity. It demonstrates how effectively a company generates profits from the shareholders' investment. Measuring ROE is important because it reflects the company's ability to generate returns for its shareholders. A higher ROE indicates that the company is utilizing shareholder equity more efficiently to generate profits. By tracking ROE, you can evaluate the company's profitability, assess the management's performance, and make informed decisions regarding capital structure and investment strategies.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) is a financial metric that provides a measure of a company's operating performance without the impact of non-operating expenses and accounting practices. As the name suggests, EBITDA represents the earnings generated before interest expenses, tax obligations, depreciation, and amortization are deducted. Measuring EBITDA is important because it provides a clearer picture of a company's operational profitability and cash flow generation capacity. By tracking EBITDA, you can evaluate the company's core profitability, compare it with industry peers, and assess its ability to generate cash flow for debt repayment or reinvestment.
Operating cash flow is a financial metric that measures the cash generated from a company's core operations. It reflects the cash inflows and outflows directly related to the company's day-to-day business activities. Measuring operating cash flow is important because it provides insights into the company's ability to generate cash from its core operations. Positive operating cash flow indicates that the company's operations are generating more cash than is being used, which is essential for covering expenses, investing in growth, and servicing debts. By tracking operating cash flow, you can evaluate the company's cash flow sustainability, liquidity, and ability to fund future investments and obligations.
Free cash flow represents the cash a company has available after meeting its operating expenses, capital expenditures, and other investments. It reflects the cash that can be used for expansion, debt repayment, dividends, or other purposes. Measuring free cash flow is important because it provides insights into the company's financial flexibility and ability to generate surplus cash. Positive free cash flow indicates that the company has excess cash to reinvest or distribute to shareholders. By tracking free cash flow, you can evaluate the company's financial strength, assess its capacity for growth and investment, and make informed decisions regarding capital allocation and shareholder returns.
Customer acquisition cost (CAC) is a financial KPI that measures the average cost a company incurs to acquire a new customer. It includes all marketing and sales expenses associated with attracting and converting customers. Measuring CAC is important because it helps assess the effectiveness and efficiency of a company's customer acquisition strategies. By tracking CAC, you can evaluate the profitability of acquiring new customers, compare it with the lifetime value of a customer, and optimize marketing and sales efforts to achieve better returns on investment. In tech, you are likely to have a higher CAC which correlates to a higher lifetime value of a customer. Whereas in ecommerce, you’ll aim for a lower CAC because the lifetime value of a customer may be lower.
Speaking of, the lifetime value of a customer (LTV) is a financial metric that represents the total revenue a company can expect to generate from a single customer throughout their entire relationship with the company. It helps assess the long-term value and profitability of acquiring and retaining customers. Measuring LTV is important because it provides insights into the return on investment from each customer and guides decision-making related to customer acquisition, retention, and loyalty programs. By tracking LTV, you can evaluate the effectiveness of your marketing and customer engagement strategies, prioritize high-value customer segments, and optimize resource allocation to maximize long-term profitability.
Churn rate is a financial KPI that measures the percentage of customers or subscribers who discontinue their relationship with a company over a specific period. It helps assess customer retention and loyalty. Measuring churn rate is important because it provides insights into the effectiveness of your customer retention strategies, product quality, and overall customer satisfaction. A high churn rate may indicate issues such as poor customer service, product dissatisfaction, or intense competition. By conducting a customer churn analysis, you can identify areas for improvement, develop customer retention initiatives, and enhance the long-term profitability and sustainability of your business.
Return on marketing investment (ROMI) is a financial metric that measures the return on investment from marketing activities and campaigns. It helps assess the effectiveness and efficiency of marketing efforts in generating revenue and achieving business objectives. Measuring ROMI is important because it allows you to evaluate the impact of marketing initiatives, optimize marketing budget allocation, and make data-driven decisions to maximize marketing ROI. By tracking ROMI, you can identify the most effective marketing channels, campaigns, and strategies, and align your marketing efforts with overall business goals.
Employee productivity is a metric that measures the efficiency and output of employees in accomplishing their tasks and responsibilities. This financial KPI reflects the level of contribution and effectiveness of the workforce. Measuring employee productivity is important because it helps assess the overall operational efficiency, resource utilization, and performance of the organization. By tracking employee productivity, you can identify areas for improvement, optimize workflows, allocate resources effectively, and enhance overall business productivity and performance.
You can’t successfully track this data without proper systems in place to capture, clean, and govern this data. In this era of increased data availability and fluctuation, many are turning to cloud data warehouses and developing modern data stacks.
Your investment in your company’s data will only return measurable value if your front-line employees and decision makers have this data at hand—not just in the boardroom or on localized spreadsheets and reports, but in the hands of every business user who is making decisions on behalf of your organization. Dashboards and excel spreadsheet analysis aren’t able to meet the demands on today’s modern business. Your team needs access to real-time, interactive data visualizations to find meaningful insights. They need a Liveboard.
Imagine a manager receiving an alert for a negative ROI, digging into the data to locate the department where the capital leak is occuring, and even receiving AI insights that suggest the correlation of this negative ROI with the start of a low-performing marketing campaign. This scenario isn’t from a futuristic sci-fi series—it’s all achievable with the modern data stack. That’s why businesses like PetsMart, Snowflake, and OrderPay all rely on ThoughtSpot to build better business intelligence solutions.
The 21 metrics and KPIs for finance listed in this post provide a comprehensive overview of which aspects of quality financial governance can be tracked to ensure accurate reporting and successful decision-making. Through the implementation of these critical financial analytics, businesses can gain a better understanding of financial performance and identify both past successes and areas that need improvement for their future strategy.
By monitoring these metrics on a Liveboard it is possible to easily configure preconfigured categories as well as quickly adapt to changes as new data streams become available. As such, tracking these key performance indicators are crucial for the success of any business in today's rapidly changing economic climate.