FINANCIAL INDICATORS: LEARN ABOUT SOME TO ANALYZE YOUR COMPANY’S FINANCIAL HEALTH
Monitoring financial indicators is essential to ensure effective management. It is through them that the manager is able to assess the reality of the business, compare it with the objectives that were created, analyze whether the efforts are sufficient to achieve the goals and also understand what actions need to be taken to achieve improvements.
In today’s article we are going to talk about some of these indicators, what they are for and how they help to analyze the results. Continue reading to find out more!
billing indicator
This is one of the most important financial indicators. It is through it that it becomes possible to know how much the company is selling, in cash, and what that represents. It can be used to assess whether the business is earning as expected. If the number is below what is expected, a sign that there may be problems with publicity strategies, salespeople’s negotiation skills, or in the sales process, for example.
However, it is also necessary to assess whether the objective outlined is consistent with the reality of the market and the company. Stipulating challenging goals is interesting to encourage more teams, however, when they are not realistic, there is a risk that they will never be met — which can lead to demotivation of the team and worsen the results even more.
receipt indicator
It is very satisfying to achieve a high turnover. However, this is not a guarantee that the money will, in fact, enter the company’s cash register. Therefore, it is important to evaluate the rate of receipts, compared to the invoiced amount, as this gives an insight into the degree of default that the business suffers.
To prevent this type of problem from occurring, it is necessary to create and implement a well-structured and stricter credit policy and take immediate action — such as stopping granting credit to customers who already have an active debt, at least until the situation is regularized. .
profitability indicator
Profit is the amount that “remains” after all costs have been deducted from the invoiced amount. With the profitability indicator, it is possible to know the degree of risk that the business presents — since a low profit, even with high revenues, is a sign that costs are high. With this, it is necessary to always invoice a large amount, so that the company is able to pay its bills.
A clear symptom of this is when the entrepreneur notes that he earned well, but that, at the end of the day, the money is not left over.
Profitability indicator
Profitability represents the return that a given investment provides for the company. For example: the relationship between spending on a new publicity strategy and the increase in revenue indicates whether this decision was profitable or not for the business. It also helps to understand the ability of a given initiative to “pay for itself”, according to the return it provided.
It is worth remembering that there is no established standard for what is considered satisfactory. Since this depends on the characteristics and conditions under which the investment was made. That is, while a given project with a return of 80% may not be adequate, another one that gives a return of 10% may be considered a success.
Debt indicator
The degree of indebtedness that a company has is also one of the most important financial indicators. Even if it is possible to achieve a positive result in a certain period, if debt payments and high interest rates consume a large portion of profits, this can pose financial problems.
In this case, the ideal is to identify the source of these problems and find ways to solve them — how to renegotiate with suppliers and avoid new high-interest loans, for example.
liquidity indicator
Liquidity is the ability of the company to generate cash in the short term. Working capital and inventories are examples of assets that have a high liquidity ratio. It is important to make it possible to honor short-term commitments.
When it is low, it is a sign that the money invested is being invested in contributions that give a long-term return, which can cause problems to pay off debts. On the other hand, if it is too high, it may be a sign that the money is being poorly invested — for example: if the stock is too high, it may be that you are buying too many products, which makes the money stopped, while it could be applied otherwise, ensuring a higher yield.
Break-even indicator
The break-even point indicates what is the minimum necessary sales value that needs to be achieved so that operating costs are paid, avoiding losses. That is, it points out exactly the point at which revenue reaches the amount necessary to cover expenses.
In addition to helping to identify the minimum target so that there are no losses in the period, it allows the manager to draw up a more accurate plan of action and be effective in drawing up sales targets.
Financial cost indicators
Controlling the costs that the company generates in its operations is essential for good management. The cost indicators allow you to better visualize the expense categories, from all areas and what impacts they cause on the company’s results. In addition, with this follow-up, it becomes possible to know more precisely which of them can be reduced or eliminated without compromising the quality of products and services.
It is worth remembering that, in addition to influencing profitability, they also affect price formation. That is, promoting cost reduction can also ensure more satisfactory results and more competitive prices for customers.
In today’s post we talk about some financial indicators that must be followed in a company. However, it is worth noting that their creation and monitoring must always be combined with business strategies. Thus, more realistic goals and more effective action plans are guaranteed, which helps in achieving the objectives.
