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Every commercial organization exists to make a profit, and the financial health of an organization is essential to its success. Financial health is not a singular parameter. It is made up of numerous variables, which can be measured and tracked using KPIs.
What are Financial KPIs?
Financial KPIs are key metrics that can help measure financial performance of the organization at-a-glance. Financial KPIs may include metrics related to expenses, debt, investments, assets and liabilities, profits, revenues and other important financial outcomes of the organization. Tracking all the important financial KPIs gives insights about the financial health of the organization and helps the leadership team make major business-critical decisions in a timely manner without having to micro-manage smaller issues.
Types of Financial KPIs
There are five categories of financial KPIs. They are:
These categories encompass numerous financial KPIs that measure performance of your business. However, choosing the best KPIs for your business requires a deeper understanding of different financial KPIs and the ability to track each metric and determine whether they matter to your business strategy. Only then you can prioritize your top KPIs that help you produce the best outcomes for the organization.
Important KPIs and metrics to track financial performance
Following are the important KPIs that you need to know about, in order to maintain the financial health of your organization.
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Also a financial metric, the price to sales ratio is used to measure the value that the investors put on...
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The net profit margin is used to find out whether a business is poorly managed and to see future profitability....
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The net present value is used to calculate the difference between the cash inflows and outflows of a potential investment...
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This is a term used in microeconomics, and it’s quite a well-known formula. However, in order to get a better...
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Everybody needs to break even, so this ratio will give you the insight of what goes too much or too...
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Abbreviated as LTV, the loan to value ratio is a risk assessment measurement. It is used to calculate the amount...
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The internal rate of return, also abbreviated as IRR, is used to identify which future projects or capital investments will...
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The financial ratio known as interest coverage ratio determines whether a company is able to make interest payments on its...
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Gross and net usually refer to income and it is also something that seems quite difficult to understand for some...
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The profitability ratio called gross profit (also known as gross profit margin) is used to calculate the percentage of sales...
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Usually abbreviated as FCF, the Free Cash Flow is an efficiency as well as a liquidity ratio. It calculates how...
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Whether a company is able to pay off its fixed charges or expenses with its own income or not –...
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If you are the accountant of a business, there are certain things that you may want to keep in mind...
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An equity ratio calculates the number of assets financed by owners’ investments. Basically, it does so by comparing the total...
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RONA - It may sound like some fancy name for a fancy person, but it’s actually the name of a...
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You may be wondering what equity multiplier means. Well, it’s a leverage ratio that basically measures the part of the...
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A company needs a fair number of operating assets in order to continue functioning. This is practically what keeps the...
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The amount of money you allocate for the growth of the company tells a lot about the growth potential of...
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This financial ratio is used to show how efficient a company is at using its revenue in order to generate...
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This efficiency ratio is used to measure if a company is efficient at managing its non-operating expenses in order to...
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The enterprise value (EV) is a direct representative of the economic value of a company – in other words, how...
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The Sortino ratio is an alternative to the Sharpe ratio, as it isolates the effects volatility has on investments. This...
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EBITA, short for Earnings before Interest Taxes and Amortization, is a formula that calculates the operational profitability of a company...
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Also called the interest coverage ration sometimes, the times interest earned ratio is a coverage ratio. It can calculate the...
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Shortened from Earnings before Interest and Taxes, and also referred to as the operating income, is an equation that measures...
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Also known as the reward to volatility ratio sometimes, the Treynor ratio is basically a risk assessment formula. It can...
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The DPR (Dividend Payout Ratio) is the dividend amount that has been given to shareholders as payment – and which...
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The debt to income ratio is considered to be a valuable number – some people even say that it is...
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The debt to equity ratio is another important liquidity ratio. Fundamentally, it compares a firm’s total debt in relation to...
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An important liquidity ratio, the debt to capital ratio measures a company’s strategy when it comes to using its financial...
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The debt service coverage ratio is another financial ratio that provides insight into a company’s financial situation. Expressly, it determines...
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How many days will it take for your company to sell its entire inventory? Well, if you have no idea,...
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This financial ratio compares the cost of sales, accounts payable, and the number of bills that remain unpaid in order...
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The current ratio refers to a company’s ability to use its current assets in order to pay off its short-term...
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Also known as an important solvency ratio, the average payment period (APP) assesses how much time it takes for a...
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The asset turnover ratio is a widely used efficiency ratio that analyzes a company’s capability of generating sales. It accomplishes...
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