Every company must monitor the main financial KPIs in the market. These indicators help to develop a more efficient strategic planning and must be aligned with your business objectives.
As they are used to measure corporate performance, metrics allow for improved communication between the different sectors of the company. In addition, data can optimize the financial sector, which is essential for any enterprise.
If you want to know more about the topic, check out 5 important financial KPIs for medium and large companies — and which should be routinely monitored.
What are financial KPIs?
First, it is important to know that KPI is the acronym for key performance indicator, also called key performance indicator. Therefore, KPIs represent information that companies must evaluate for better development.
In this way, it is possible to define strategies and analyze fundamental data for the management of a business. Metrics also allow you to plan new goals to reach a better result in the future.
In this sense, KPIs can be financial, production, marketing, human resources, among others. In the specific case of financial indicators , they involve the economy and finance sector of an organization.
Managers can then analyze business numbers and measure costs, profitability, billing and other relevant information.
Why accompany them?
As you have seen, keeping track of financial KPIs helps in the development of the company in the market. They are fundamental to improve decision-making by managers and provide the basis for better choices.
After all, it is possible to have accurate, concrete and transparent data about the financial situation of the organization. This information serves as a basis for setting more realistic and achievable goals. They can also be used to identify sectors with higher cost or financial return.
Monitoring KPIs frequently is also important to facilitate the identification of areas for improvement. With this, they can be used to find any failures in management and make the necessary changes to ensure that the financial objectives will be achieved.
What are the top 5 KPIs for medium and large businesses?
Now you know what financial KPIs are and why it’s important to track them, so it’s worth knowing the main ones. Check out 5 indicators that can be very useful for medium and large companies:
The profitability metric helps managers understand what the true risk of the business is. Another possibility is to calculate the percentage of profit over billing to analyze whether total costs are high.
In some cases, even if the company has a good monthly billing, the company does not have capital at the end of the month. Thus, profitability is only considerable if revenue is very high, indicating that the business risk is high. One way to solve the problem may be to review operating costs.
In practice, the calculation of the profitability index considers gross revenue (all earnings from sales) and net profit. This type of profit is obtained after deducting taxes, fees, levies, expenses and other costs.
By dividing the two values, you will have the KPI result — which can also be expressed as a percentage.
Billing is related to the company’s sales and indicates how much they represent in cash for the organization’s cash. The calculation is quite simple and requires the sum of all sales figures in a given period.
Therefore, the KPI is fundamental for financial management and can be used for analysis and decision making. With this indicator, managers can compare actual and planned billing, for example.
If the result does not reach the expected value, some measures must be taken. For example, based on the analysis, it is possible to develop actions to attract more customers. However, before making a decision, it is also necessary to evaluate the objectives of the company.
If they are too ambitious for the reality of the business and the market, they may not be able to be met. As a result, the teams involved in the processes may become demotivated, requiring the readjustment of goals.
Liquidity shows the ability of an organization to generate cash in the short term. The objective is to indicate whether the business is able to meet all its commitments in a given period — usually 1 year.
Merchandise inventory, for example, tends to be an asset with a high liquidity index. In general, it will be commercialized in a short time. Thus, current liquidity considers the relationship between current assets and current assets.
If the result of the division is low, it indicates that the money is being used in long-term investments. Already the high results show that the money is stopped in the cashier or being used in the inventory.
Indebtedness indicates the debt level of a company. This may involve amounts owed to suppliers , financial institutions, partners, among others. In some cases, paying interest and settling these debts may require a large portion of the profit earned.
In these situations, the company may have serious financial problems. Therefore, it is essential that the manager knows how to identify the reasons for the indebtedness and look for ways to solve it.
To calculate the debt ratio, simply divide the company’s total liabilities by its total assets. The first term refers to debts, commitments and financial obligations of the company.
Assets, on the other hand, are goods and rights that it owns, such as cash in hand and receivables. The higher the result found, the more serious the indebtedness.
Do you know what return an investment is providing the business? The Profitability KPI can help you get the answer. In addition, this indicator is also used to assess the ability of a project to generate profit.
As there is no standard for all companies, the return will depend on the conditions of the investment. Therefore, for a result to be considered interesting, it is necessary to analyze the context of the company.