Your Top Six Financial Indicators
Achieving a firm and intricate understanding of your company’s financial picture may be the greatest challenge for any business owner, large or small. It’s estimated that even many Fortune 500 CEOs (as much as 30%) have devoted the first few years of their careers to understanding finance. There’s a tremendous amount of financial data to crunch.
On the other hand, you can’t lose yourself in the unending barrage of data. As a manager, business owner, or executive, it’s your job to see the bigger picture that all of the pixels paint for you. With more analytics available, and the intelligence of data visualization and enterprise-fed insights, you have the ability to track numbers, trends, metrics, and performance like never before.
So what are the most important indicators to track?
A quick reminder
Understanding critical financial indicators is key to making better-informed decisions for your business. So before we start, it’s important to know that most KPIs fall into 5 categories based on the information they measure:
- Profitability KPIs
- Liquidity KPIs
- Efficiency KPIs
- Valuation KPIs
- Leverage KPIs
If you’re a CEO or business owner, we recommend your dashboards include these key indicators:
KPI #1: Net Profit Margin
Divide net profit by net sales and you’ll have the number that reveals the efficiency with which your company converts its revenue into profits. It’s the percentage of revenue remaining, after all operating expenses, interest, taxes, and preferred stock dividends (if any) have been deducted from your company’s total revenue.
KPI #2: Gross Profit Margin
This is what we refer to when we talk about the “bottom line.” It’s a readily available metric of the business’s financial health and measures the ratio of your profit to your gross revenues. With adequate GPM, you’ll know if the business can pay its operating and other expenses and still build for the future. It’s also a great way to compare your productivity against your competitors.
KPI #3: Your Industry Metrics
Every industry has its own set of indicators that help drive profits. Pick 1-3 indicators that represent the metrics for yours. As a company leader, you’ll do well to compare these metrics with those of your competitors on a regular basis.
KPI #4: Debt/Equity Ratio
Divide your total liabilities by your company equity and you get this nifty number that tells you what proportion of your company’s equity and debt is being used to finance your assets. A lower ratio means you have a less risky financial structure.
KPI #5: Manufacturing Defects
If your company produces physical products, it’s valuable to calculate product defects as a percentage of manufacture to indicate how defect-free your production processes are.
KPI #6: Balance Sheet metrics
Stay on top of revenue, cash flow, assets, and liabilities per quarter or per year.
Start tracking financial indicators in dashboards
To monitor your financial performance effectively you can use real-time & intelligent dashboards to display these critical indicators. That way, you’ll gain a more strategic picture of your company’s performance based on key performance indicators that drive profitability, cash flow, and value.
Hope this helps, happy dashboarding!