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.
In order to be sound in your financial goals, you need to have a great source of knowledge on every possible investment practice and technique....
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Read moreThe accounts payable turnover ratio is a liquidity ratio that indicates the ability a company has to repay its accounts payable. The repayment is done...
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Read moreIf you wanted to know what the Net Operating Profit after Tax is and how it works, you came to the right place. Net Operating...
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Read moreThe net profit margin is used to find out whether a business is poorly managed and to see future profitability. By comparing the total sales...
Read moreThe net present value is used to calculate the difference between the cash inflows and outflows of a potential investment or project. To make it...
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Read moreTo better understand what the return on capital employed means, first we need to understand what the capital employed is. By employing capital, you will...
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Read moreThis is a term used in microeconomics, and it’s quite a well-known formula. However, in order to get a better understanding of what marginal revenue...
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Read moreThe internal rate of return, also abbreviated as IRR, is used to identify which future projects or capital investments will have an acceptable return –...
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Read moreThe profitability ratio called gross profit (also known as gross profit margin) is used to calculate the percentage of sales that are exceeding the costs...
Read moreThe financial measurement called goodwill to assets is used to compare the intangible assets of a company – like a customer list, brand name, and...
Read moreUsually abbreviated as FCF, the Free Cash Flow is an efficiency as well as a liquidity ratio. It calculates how much money a company is...
Read moreWhether a company is able to pay off its fixed charges or expenses with its own income or not – before income taxes and interests...
Read moreIf you’re wondering what this ratio is, you’re just about to find out. It’s an efficiency ratio that measures a firm’s return on their investment...
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Read moreIf you are the accountant of a business, there are certain things that you may want to keep in mind –one of these things being...
Read moreAn equity ratio calculates the number of assets financed by owners’ investments. Basically, it does so by comparing the total equity in the company to...
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Read moreA company needs a fair number of operating assets in order to continue functioning. This is practically what keeps the company going. The return on...
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Read moreThis financial ratio is used to show how efficient a company is at using its revenue in order to generate profits. Also called the operating...
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Read moreThis efficiency ratio is used to measure if a company is efficient at managing its non-operating expenses in order to generate sales during the normal...
Read moreThe enterprise value (EV) is a direct representative of the economic value of a company – in other words, how much money someone would have...
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Read moreEBITA, short for Earnings before Interest Taxes and Amortization, is a formula that calculates the operational profitability of a company by including the costs of...
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Read moreShortened from Earnings before Interest and Taxes, and also referred to as the operating income, is an equation that measures the operating profits of a...
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Read moreThe defensive interval ratio is considered to be one of the most valuable liquidity ratios. Expressly, it focuses on calculating how many days it takes...
Read moreThe debt to income ratio is considered to be a valuable number – some people even say that it is as important as one’s credit...
Read moreThe debt to equity ratio is another important liquidity ratio. Fundamentally, it compares a firm’s total debt in relation to its total equity. The debt...
Read moreAn important liquidity ratio, the debt to capital ratio measures a company’s strategy when it comes to using its financial leverage. More specifically, it compares...
Read moreTo begin with, the debt to asset ratio could be defined as a leverage ratio, calculating the total amount of assets financed by creditors, as...
Read moreThe debt service coverage ratio is another financial ratio that provides insight into a company’s financial situation. Expressly, it determines a company’s capability of covering...
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Read moreThis financial ratio compares the cost of sales, accounts payable, and the number of bills that remain unpaid in order to calculate the average time...
Read moreThe current ratio refers to a company’s ability to use its current assets in order to pay off its short-term liabilities. This ratio is labeled...
Read moreAlso abbreviated as COGS, the cost of goods sold measures the direct costs that were sustained during the production of products that were sold during...
Read moreThe statistical measure of the association or dependence of two numbers is known as the correlation coefficient. Also known as Pearson correlation, it can appear...
Read moreThe difference between a company’s total sales revenue and variable costs is also known as a contribution margin. Sometimes used as a ratio, it shows...
Read moreA company’s ability to pay off its current obligations with cash equivalents or cash only is determined with the help of the cash ratio, also...
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Read moreAlso known as an important solvency ratio, the average payment period (APP) assesses how much time it takes for a business to pay its vendors,...
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Read moreIn today’s post, we will focus on explaining the specifics of the accumulated depreciation ratio. We’re talking about a fixed assets ratio that calculates the...
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