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The Financial KPI Library: 68 Measures To Consider Tracking

Dylan Miyake

Dylan is a Co-Founder and Managing Partner of ClearPoint Strategy and spends his time either in the clouds or in the weeds.

Measurable key performance indicators (KPIs) for finances.

Table of Contents

Financial measures are the most frequently used metrics in many organizations.  They are at the top of a for profit Balanced Scorecard and often serve as the foundation for government and nonprofit scorecards.

We get questions all the time about the best way to ensure you’re on track with your finances.  While it’s true that your measures should support on your strategy, it’s true that some measures are better than others.  Keep in mind that you should have a balance of customer, process, and HR measures as well.  (Click on the links to check out our customer measure library, our process KPI library, and our key HR metrics.).

Many organizations consider financial performance indicators to be the ultimate outcome measure—for good reason. They are very important to monitor, and because every company uses them, they’re great for comparing how you’re doing against your competition. To give you a leg up, we’ve compiled this library of 68 important financial KPIs and scorecard measures that you may want to consider implementing.

Note: We’re not suggesting nor advocating for you to begin measuring all of these KPIs. Rather, you can use this extensive list to get an idea of what like-minded organizations may be looking at, then research KPIs from other lists, and decide upon the critical few that are in line with your strategy.

Cash Flow KPIs

• Working Capital : Measures an organization's financial health by analyzing readily available resources that could be used to meet any short-term obligations.
• Operating Cash Flow : The amount of cash generated by regular business operations.
• Cash Rotation (365/Cash Cycle) : The number of times the cash comes back to the organization for a period of one year.
• Cash Flow from Investing Activities : Shows the change in an organization's cash position caused by investments, gains, or losses.
• Cash Flow from Financing Activities : Demonstrates an organization's financial strength. Formula: (Cash Received from Issuing Stock or Debt) - (Cash Paid as Dividends and Reacquisition of Debt/Stock) = (Cash Flow from Financing Activities)
• Cash Flow : The total amount of money being transferred into and out of an organization.
• Cash Conversion Cycle : Demonstrates the amount of time it takes for money invested in the organization to come back to the organization in the form of increased revenue.
• Accounts Receivable Turnover : The rate at which an organization collects on outstanding accounts. Formula: (Net Credit Sales) / (Average Accounts Receivable) = (Accounts Receivable Turnover)
• Accounts Receivable : The amount of money an organization is owed by its customers.
• Accounts Payable Turnover : The rate at which an organization pays off suppliers and other expenses. Formula: (Total Supplier Purchases) / (Average Accounts Payable) = (Accounts Payable Turnover)
• Accounts Payable : Shows the amount of money an organization owes its suppliers.
• Number/Percentage of Invoices Past Due : Invoices that remain unpaid after their due date.
• Total Expenses : Consists of the total costs an organization incurs during a reporting period (including marketing, sales, and operations costs).
• SG&A : The costs of operating an organization—including selling, and general and administrative expenses—are collectively referred to as SG&A.
• Sales Expense : Costs incurred by the sales department—including salaries and commissions.
• Marketing Expenses : Encompasses the total costs incurred by the marketing department, including advertising, salaries, research, and surveys.
• Inventory Turnover : The number of times an organization is able to sell off its in-stock inventory in a given period. Formula: (Sales) / (Inventory) = (Inventory Turnover)
• Cost Per Unit : The price to produce, store, and sell one unit of a particular product including fixed and variable costs of production. Formula: ([Variable Cost] + [Fixed Cost]) / (Number of Units Produced) = (Cost Per Unit)
• Cost Per Hire : The average cost of hiring a new employee, including advertising fees, employee referrals, travel expenses, relocation expenses, and recruiter costs. Formula: (New Hire Expenses) / (Number of New Hires) = (Cost Per Hire)
• Cost of Goods Sold (COGS) : Represents the cost of materials and direct labor used to produce a good.
• Average Annual Expenses to Serve One Customer : This is the average amount needed to serve one customer. Formula: (Total Expenses) / (Total Customers) = (Average Annual Expenses to Serve One Customer)
• Customer Acquisition Cost : The cost to acquire one new customer.
• Cost per Click : Measures the cost of a pay-per-click advertising campaign (such as Google AdWords).
• Percentage of Cost of Workforce : The cost of the workforce as compared to all costs can be measured by summing all salaries and dividing by the total company costs within a given time period. Formula: (Salary Costs) / (Total Company Costs) = (Percentage of Cost of Workforce)
• Health Care Expense per Current Employee : The total price of health care costs divided out among all employees provides an understanding of the comprehensiveness of a company's health care plan.
• Quick Ratio (“Acid Test”) : Shows the ability of an organization to meet any short-term financial liabilities, such as upcoming bills. Formula: ([Current Assets] - [Inventories]) / (Current Liabilities) = (Quick Ratio)
• Price-Earnings Ratio (P/E) : An equity valuation multiple that compares an organization's share price to its per-share earnings. Formula: (Market Value Per Share) / (Earnings Per Share) = (Price-Earnings Ratio)
• Debt to Equity Ratio : Measures how an organization is funding its growth and using shareholder investments. Formula: (Total Liabilities) / (Shareholders’ Equity) = (Debt to Equity Ratio)
• Debt Level : The amount of debt that an organization currently has.
• Current Ratio : Measures the ability of an organization to pay all of its debts over a given time period. Formula: (Current Assets) / (Current Liabilities) = (Current Ratio)
• Bad Debt : Debt that is not collectible, and is often written off as an expense.

Investment KPIs

• Savings Levels Due to Improvement Efforts : Many organizations look at investing in improvements, or merging operations (or even companies). This KPI looks at the dollar value of the savings achieved as a result of these investments.
• Return on Innovation Investment : Can be calculated by looking at the revenue from new products, or the number of new products meeting a revenue threshold. This is typically only reviewed by organizations that have created an innovation department or budget.
• Inventory Assets : The cost of merchandise purchased or manufactured, but not yet sold, may be a good leading indicator of preparedness for growth or even slowing growth.
• Innovation Spending : The amount of money that an organization spends on innovation. Some organizations have this budgeted as research and development, and others have different accounting terms. Ultimately, if you use this measure, you are valuing innovation as a key strategic thrust.
• Break Even Time : The time it takes an organization to break even from its investment in a new product or process. If the costs are big up front, this measure can help you understand how long it will take to recoup these expenses.
• Percentage of Investment in… : Used for measuring investments in different lines of business. You might measure the percentage of your investment in organic products vs. total investment in products overall. Formula: (Amount of Investment) / (Total Capital Spent) = (Percentage of Investment)
• Number of Key Capital Investments that Meet or Exceed ROI Expectations : Can be based on the plan for investments, or on the results of past investments. Useful for organizations that invest in many capital projects.

Profitability KPIs

• Sales Growth : The change in an organization's sales from one reporting period to another. Formula: ([Current Sales] - [Past Sales]) / (Past Sales) = (Sales Growth)
• ROI (Return on Investment) : Shows the efficiency of an investment. Formula: ([Gain from Investment] - [Cost of Investment]) / (Cost of Investment) = (ROI)
• ROE (Return on Equity) : The amount of net income an organization generates compared to the amount of shareholders’ equity. Formula: (Net Income) / (Shareholders’ Equity) = (ROE)
• ROA (Return on Assets) : Indicates how profitable an organization is relative to its total assets. Formula: (Net Income) / (Total Assets) = (ROA)
• Return on Capital Employed : Measures an organization's profitability and the efficiency with which its capital is employed.
• Program Profitability : Tracks the profitability of an individual program.
• Operating Profit Margin : Measures income after variable costs of production are considered. Formula: (Operating Income) / (Net Sales) = (Operating Profit Margin)
• Net Profit Margin : The percentage of an organization's revenue that is net profit. Formula: (Net Profit) / (Revenue) = (Net Profit Margin)
• Net Profit : The amount of money an organization makes after taking out all expenses and other costs. Formula: (Income) - (Expenses) = (Net Profit)
• Gross Profit Margin : The percentage of revenue that is profit after the cost of production and sales is considered. Formula: (Gross Margin) / (Revenue) = (Gross Profit Margin)
• Gross Profit : An organization's profit after the cost of production and sales is considered. Formula: (Revenue) - (COGS) = (Gross Profit)
• Economic Value Added (EVA) : An estimate of an organization's economic profit.
• Average Capital Employed : Shows profitability compared to investments made in new capital.
• Customer Lifetime Value : The net profit an organization anticipates gaining from a customer over the entire length of a relationship helps to determine the costs/benefits of acquisition efforts.
• ( Customer Lifetime Value) / (Customer Acquisition Cost) : The ratio of customer lifetime value to customer acquisition cost should ideally be greater than one, as a customer is not profitable if the cost to acquire is greater than the profit they will bring to a company. Formula: (Net Expected Lifetime Profit from Customer) / (Cost to Acquire Customer)
• Human Capital Value Added (HCVA) : By taking all non-employee related costs away from the revenue and dividing the result by the number of full-time employees, one can deduce how profitable the average worker in an organization is. Formula: ([Revenue] - [Non-Employee-Related Costs]) / (Number of Full-Time Employees) = (HCVA)

Revenue KPIs

• Sales Volume : The amount of sales in a reporting period, expressed in the number of units sold.
• Sales Forecast Accuracy : The proximity of the forecasted quantity of sales to the actual quantity of sales.
• ROI of Research & Development : The revenue generated by investing money into research and development. Formula: ([Gain from Investment] - [Cost of Investment]) / (Cost of Investment) = (ROI of Research & Development)
• Revenue per Full-Time Employee (FTE) : Demonstrates how expensive an organization is to run. Formula: (Revenue) / (Number of FTE) = (Revenue per FTE)
• Revenue Growth Rate : The rate at which an organization's income is increasing. Formula: ([Current Revenue] - [Past Revenue]) / (Past Revenue) = (Revenue Growth Rate)
• Revenue : The total income an organization receives. Formula: (Price of Goods) x (Number of Goods Sold) = (Revenue)
• Operating Income : The profit from operations after removing operating expenses. Formula: (Gross Income) - (Operating Expenses) - (Depreciation & Amortization) = (Operating Income)
• Net Income : The amount of sales after subtracting discounts, returns, and damaged goods. Formula: (Revenue) - (Expenses) = (Net Income)
• EBT (Earning Before Taxes) : Shows how much an organization has made after considering COGS, interest, and SG&A expenses, before taxes are subtracted. Formula: (Revenue) - (COGS) - (Interest) - (SG&A) = (EBT)
• EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization) : Measures revenue after expenses are considered and interest, taxes, depreciation and amortization are excluded. Formula: (Revenue) - (Expenses Excluding Interest, Tax, Depreciation & Amortization) = (EBITDA)
• Average Annual Sales Volume per Customer : This is the average amount of sales per customer, expressed in currency. Formula: (Total Sales) / (Total Customers) = (Average Annual Sales Volume per Customer)
• Asset Utilization : Total revenue earned for every dollar of assets an organization owns. Formula: (Total Revenue) / (Total Assets) = (Asset Utilization)
• Share of Wallet : Measures the portion of a customer's total spending that goes toward the company's products and services.
• Earnings Before Interest and Taxes (EBIT) : An indicator of a company's profitability with expenses removed and interest and tax excluded. Formula: (Revenue) - (COGS) - (Operating Expenses) = (EBIT)

What are financial KPIs?

Financial Key Performance Indicators (KPIs) are specific metrics used to measure and track a company's financial performance and health. They provide insights into various aspects of the business, such as profitability, liquidity, efficiency, and solvency.

How do you measure financial KPIs?

Financial KPIs are typically measured using quantitative data derived from the company's financial statements, including the income statement, balance sheet, and cash flow statement. Calculations may involve simple formulas (e.g., profit margin = net income / revenue) or more complex financial ratios (e.g., return on equity, current ratio). The frequency of measurement depends on the KPI and the company's needs, ranging from daily to annually.

How do you create a financial KPI dashboard in Excel?

To create a financial KPI dashboard in Excel, follow these steps:

- Identify Key Metrics: Determine the most relevant financial KPIs for your business. - Gather Data: Collect the necessary data from financial statements or other sources. - Create Tables/Charts: Use Excel's charting tools to visualize the data (e.g., line graphs for trends, bar charts for comparisons). - Organize Layout: Arrange the tables and charts in a clear and intuitive dashboard format. - Add Context: Include labels, titles, and brief explanations to help users interpret the data. - Update Regularly: Ensure the dashboard is updated with the latest data to maintain its relevance.

What is a financial KPI?

A financial KPI is a specific metric that measures a company's financial performance. Examples include:

- Revenue: Total income generated from sales or services. - Net Profit Margin: Percentage of revenue remaining after all expenses are deducted. - Return on Investment (ROI): Measures the profitability of an investment relative to its cost. - Debt-to-Equity Ratio: Indicates the proportion of debt used to finance a company's assets. - Operating Cash Flow: Cash generated from a company's core business operations.

What is a non-financial KPI?

Non-financial KPIs are metrics that measure aspects of a company's performance not directly related to finances. They can be quantitative (e.g., customer satisfaction rating, employee turnover rate) or qualitative (e.g., brand reputation, employee morale). Non-financial KPIs often provide insights into the drivers of financial performance and help organizations understand their overall health and success.

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Crafting Your Business Plan Financials: A Step-by-Step Guide

This guide is my way of taking you by the hand (figuratively, of course) and walking you through the process of building your business plan financials. Whether you’re scribbling your first ever business plan on a napkin or revisiting an existing one to adapt to the ever-evolving market landscape, this guide is for you.

Key Takeaways

• Building business plan financials involves forecasting the three financial statements : income statement , balance sheet, and cash flow statement.
• Financial projections should be based on market research and industry trends, as well as your unique business model and goals.
• Business plan financials are essential in securing funding, guiding decision-making, setting benchmarks, managing cash flow , and identifying risks and opportunities.

Understanding the Basics of Business Plan Financials

Diving into the world of business plan financials can feel a bit like stepping onto a dance floor for the first time. You know you need to move, but figuring out how to not step on your own feet (or anyone else’s) is the real challenge.

So, let’s break down the dance floor, shall we? Picture your business plan’s financial section as a trio of critical financial statements performing the most pivotal routine of the night, consisting of the Income Statement, the Balance Sheet, and the Cash Flow Statement.

• The Income Statement : Also known as the profit and loss statement , this is your financial performance’s highlight reel over a specific period. It tells you whether your business is hitting the high notes or if it’s time to change the tune. By tracking revenues, costs, and expenses, the Income Statement gives you a clear picture of your net profit or loss. Think of it as your business’s scorecard, showing you if you’re leading the dance or stepping on toes.
• The Balance Sheet : Imagine this as a snapshot capturing a moment in your business’s dance routine. It’s all about balance (hence the name). On one side, you have your assets—everything your business owns. On the other, liabilities and equity—everything your business owes plus the ownership interest. The Balance Sheet tells you exactly where you stand at any given moment, making sure you’re poised and ready for the next move.
• The Cash Flow Statement : If the Income Statement is about the performance and the Balance Sheet is about the pose, then the Cash Flow Statement is all about the movement. It tracks the cash coming in and going out of your business. This statement is your choreography, showing you if you’ve got the liquidity to keep dancing or if you’re about to trip over a lack of cash.

Why Do You Need Business Plan Financials?

Let’s dive into the different uses for those business plan financials, shall we?

Securing Funding : This one’s pretty straightforward. When you’re pitching to investors or applying for a loan, your financials are the proof in the pudding. They show that you’re not just all talk—you’ve got a plan that’s expected to bring in real money.

Guiding Decision-Making : Your financials are a compass in the wild terrain of business decisions. Want to know if you can afford to increase operating expenses, launch a new product, or expand into a new market? Your financials hold the answers.

Setting Benchmarks : Without benchmarks, how do you measure success? Your financials set clear goals for revenue, profit margins, and growth trajectories.

Cash Flow Management : Ah, cash flow projection —the lifeblood of any business. Your financials help you predict when money will be coming in and going out, ensuring you have enough cash on hand to keep the lights on.

Identifying Risks and Opportunities : By analyzing your financials, you can spot potential risks and opportunities before they become glaring issues or missed chances.

Step 1: Laying the Groundwork with Market Research

Understanding your market is akin to understanding the latest viral dance craze. You need to know who’s dancing, why they’re dancing, and what moves are most popular. In business terms, this means getting to grips with who your customers are, what needs or desires they have, and how your product or service fits into that picture. This is where market research comes into play.

How to Gather Data for Market Research:

• Start with Secondary Research : This is like the pre-party research before you hit the dance floor. Look into existing studies, industry reports, and market analysis that give you a bird’s-eye view of your sector. It’s cheaper (often free), quicker, and a great way to start outlining your market landscape. Websites like Statista and Pew Research are a great resource for secondary research.
• Dive into Primary Research : Now, it’s time to mingle at the party yourself. Surveys, interviews, and focus groups with potential customers will give you insights straight from the horse’s mouth. Yes, it’s more time-consuming and can be costlier, but the firsthand data you gather is worth its weight in gold.
• Analyze Your Competitors : Think of this as knowing who else is on the dance floor with you. Understanding their moves can help you find your unique rhythm. Look at their offerings, pricing strategies, and customer feedback. What are they doing well? Where are they stumbling? This insight is invaluable.

My Experience With Market Research

Let me take you back to the early days of my own business venture, when the concept of “market research” was as foreign to me as quantum physics. My team and I were launching a new financial tool designed to simplify budgeting for freelancers—a noble cause, but we were shooting in the dark with our sales forecast .

So, we hit the books (and the streets) for some hardcore market research. We surveyed freelancers about their budgeting woes, dove into forums where they vented their frustrations, and analyzed competitors who were only partially addressing these pain points. What we found was a goldmine of information that not only validated our product idea but also helped us pinpoint exactly how to position our tool in the market.

Armed with this data, we crafted our revenue projections not on wishful thinking but on solid, research-backed insights. And guess what? Our initial sales outperformed our projections by 20%. It was a clear testament to the power of laying the groundwork with thorough market research.

Step 2: Crafting Your Income Statement

Crafting your profit and loss statement is akin to writing the script for the blockbuster movie of your business’s financial performance. It’s where the rubber meets the road of financial statements, blending the drama of revenue streams with the gritty realism of expenses, all leading up to that climactic figure: your net income.

Breaking Down Revenue Streams

Let’s start our financial projections by casting our stars: the revenue streams. Identifying and projecting these is like mapping out the plot points of our story. For my own venture, it was a mix of predictable box office hits (fixed revenue from long-term contracts) and surprise indie darlings (variable sales from new markets).

The key here is diversity; relying on a single revenue stream is like betting your entire budget on a rookie director. Exciting, sure, but risky. By understanding and forecasting different sources of income, you’re setting the stage for a financial narrative that holds up against unexpected twists.

Fixed vs. Variable Expenses: The Supporting Cast

Next up, we have our supporting characters: fixed and variable costs. Fixed expenses are those steadfast sidekicks that stick with you through thick and thin—rent, salaries, and subscriptions.

They’re your base crew, essential but predictable. Variable expenses, on the other hand, are like those special effects in big action sequences—they fluctuate depending on the production’s scale (or, in our case, the business operations). Materials cost, commission fees, and shipping charges can vary, adding dynamism and a bit of unpredictability to our financial plot.

EBITDA, and Why It’s Your Friend

Now, let’s talk about a concept that might sound like the latest tech gadget but is actually one of your best allies: EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). Imagine EBITDA as that veteran actor who brings depth and credibility to your movie.

It shows you how well your business is performing without getting bogged down by tax structures, financing decisions, or how much you’ve spent on those fancy ergonomic office chairs.

It is also a critical part of break even analysis. Break even analysis is like the climax of our financial story—it shows the point where your revenue and expenses are equal. It helps you determine how much you need to sell or how to adjust your costs to reach profitability.

Step 3: Building Your Balance Sheet

Think of your balance sheet as the ultimate snapshot of your business’s financial stability at any given moment. It’s like taking a selfie with your assets, liabilities, and equity—everything has to look just right.

Assets, Liabilities, and Equity: What Goes Where?

Imagine your business’s finances as a giant storage unit (stay with me here). On one side, you’ve got your assets—everything you own that has value. This includes cash in the bank, inventory, equipment, and even amounts owed to you by customers (receivables). These are like the treasures you’ve stored away, everything from the antique lamp (cash) to the boxes of unsold novels you swear will be collector’s items one day (inventory).

On the opposite side are your liabilities. Think of these as the IOUs taped to the door by your friends who’ve borrowed your stuff. These could be loans you need to pay back, money you owe to suppliers, or rent for the space your business occupies.

Balancing these two sides is your equity , which is essentially the net worth of your business. If you were to liquidate everything today—sell off all your treasures and pay back your friends—whatever cash you’re left holding is your equity. It’s what you truly “own” outright.

Maintaining a Healthy Balance Sheet Over Time

Here’s where things get personal. In the early days of my venture, our balance sheet was, to put it mildly, a bit of a fixer-upper. Our assets were like mismatched socks—present, but not exactly optimized. Meanwhile, our liabilities were like laundry piles—growing faster than we could manage. The turning point came when we started treating our balance sheet like our business’s health checkup, regularly reviewing and adjusting our financial strategies to ensure everything remained in healthy proportion.

We focused on bolstering our assets, not just by increasing sales but also by managing our receivables more effectively and making smart choices about what equipment to purchase or lease. Simultaneously, we worked on trimming down our liabilities, negotiating better terms with suppliers, and restructuring debt to more manageable levels.

Step 4: Forecasting Cash Flow

Forecasting cash flow—it’s like checking the weather before you head out on a road trip. You wouldn’t want to get caught in a storm without an umbrella, right? Similarly, in the world of finance and accounting, especially for us millennials hustling through our careers, understanding the ins and outs of cash flow is crucial for navigating the unpredictable journey of business operations without getting soaked.

Why Cash Flow is Your Business’s Weather Forecast

Cash flow is essentially the heartbeat of your business’s financial health—tracking the inflow and outflow of money. It’s what keeps the lights on, from paying your awesome team to ensuring the coffee machine (aka the real MVP) is always running. Without a keen eye on cash flow, even the most profitable business can find itself in a pinch when bills come due. It’s about timing, and just like you can’t download more time, you can’t magically create cash when you need it—unless you’ve planned ahead.

Step-by-Step Method for Creating a Cash Flow Forecast

• Start with the Basics : Gather data on all your cash inflows, like sales or accounts receivable , and outflows, including expenses, payroll, and loan payments. Think of it as setting up your playlist before the trip begins.
• Choose Your Time Frame : Decide if you’re mapping out the next month, quarter, or year. This is like deciding whether you’re road-tripping to the next town over or cross-country.
• Use Historical Data : Look back at past months or years to guide your predictions. It’s like knowing there’s always traffic at rush hour and planning your departure time accordingly.
• Factor in Seasonality : Just like packing an extra sweater for a chilly evening, remember that some months may have higher expenses or lower sales. Plan for these fluctuations.
• Keep It Updated : Your cash flow forecast isn’t a set-it-and-forget-it road map. Update it regularly with actual figures to stay on course. This is like checking your GPS for traffic updates in real-time.

My Great Cash Flow Mishap

Early in my career, I experienced what I affectionately call “The Great Cash Flow Mishap.” We were flying high, sales were up, and in my mind, we were invincible. I overlooked the importance of forecasting cash flow because, hey, money was coming in, right? Wrong. Sales being up didn’t mean cash in hand, thanks to generous payment terms we’d extended. When a large expense bill came due, we found ourselves in a financial thunderstorm without an umbrella.

It was a wake-up call. We scrambled, made it through, but learned a valuable lesson in the process: cash flow forecasting isn’t just a nice-to-have; it’s essential. It’s the difference between sailing smoothly and getting caught in a downpour. Since then, I’ve treated cash flow forecasting like my financial weather app, always checking it to ensure we’re prepared for whatever financial weather lies ahead.

Step 5: Bringing It All Together for Financial Analysis

So, you’ve danced through the steps of laying down your financial groundwork, from market research all the way to cash flow forecasting. Now, it’s time for what I like to call the “big reveal” in our financial saga—financial analysis. Think of it as the season finale where all the plotlines converge, and you finally get to see the full picture of your business’s financial health. Exciting, right?

How to Use Your Financials to Calculate Key Ratios

Financial ratios might sound like something out of a high school math class you’d rather forget, but they’re actually pretty cool once you get to know them. They’re like the secret codes that unlock the mysteries of your business’s financial narrative. Here are a few key players:

• Profit Margin : Sales are great, but what’s left after expenses? This ratio tells you exactly that. It’s like checking how much gas is left in the tank after a long trip.
• Current Ratio : This one measures whether you have enough assets to cover your liabilities. Imagine you’re planning a big party (i.e., a major business move). Do you have enough snacks (assets) for all the guests (liabilities)?
• Debt to Equity Ratio : It shows the balance between the money you’ve borrowed and the money you’ve personally invested in your business. Think of it as the ratio between the contributions to the potluck from you and those from your friends.

Innovative Tools and Techniques for Financial Analysis

Gone are the days of poring over spreadsheets until your eyes cross. Today, we have an arsenal of innovative tools at our disposal that make financial analysis not just bearable but actually kind of fun:

• Cloud-Based Accounting Software : These platforms are like having a financial wizard by your side, automating many of the tedious tasks involved in financial analysis.
• Data Visualization Tools : Imagine turning your financial data into a vibrant art gallery. These tools help you visualize trends, patterns, and anomalies in your data, making complex information digestible at a glance.
• AI and Machine Learning : The new kids on the block, these technologies offer predictive insights based on your financial data, helping you make informed decisions about the future.

Step 6: Planning for the Future: Scenarios and Projections

Planning for the future in the fast-paced world of finance and accounting is a bit like trying to pack for a vacation without knowing the destination. Will it be sunny beaches or snowy mountains? In business, just as in travel, the key to being well-prepared lies in anticipating a range of scenarios. This approach doesn’t just cushion you against the unexpected; it equips you to navigate the twists and turns of the market with confidence and agility.

The Importance of Creating Financial Scenarios

Imagine you’re at a crossroads, each path leading to a different outcome for your business. One might lead to rapid growth if a new product takes off, another to steady progress as you expand your customer base, and yet another to a challenging period if the market takes a downturn. Creating financial scenarios is like mapping out each of these paths in advance, complete with signposts (financial indicators) that help you recognize which path you’re on and what you need to do to stay on course—or change direction if necessary.

This practice isn’t about predicting the future with crystal ball accuracy; it’s about being prepared for whatever comes your way. By considering various “what ifs” and planning for them, you transform uncertainty from a source of anxiety into a strategic advantage.

Practical Advice on Long-Term Financial Planning

• Start with a Solid Foundation : Your current financial statements are the launching pad for any long-term planning. Ensure they’re accurate and up-to-date.
• Identify Key Drivers : Understand what factors most significantly impact your business’s financial health—be it sales volume, pricing strategies, or cost controls—and model your scenarios around these drivers.
• Embrace Technology : Leverage financial planning software that allows you to create and compare different scenarios with ease. These tools can provide invaluable insights and save you a heap of time.
• Regular Reviews : The only constant in business is change. Regularly review and adjust your scenarios and projections to reflect new information and market conditions.

How “Planning for the Worst” Saved My Business

There was a time when my business faced what I fondly refer to as “the perfect storm”—a combination of market downturn, rising costs, and a major client backing out last minute. It was every entrepreneur’s nightmare. But here’s the twist: we weathered the storm, not by luck, but by preparation.

During sunnier days, we’d developed a “worst-case scenario” plan . It felt a bit like rehearsing for a play we never wanted to perform, but when the storm hit, that script became our survival guide. We knew exactly which costs to cut, how to streamline operations, and where we could find alternative revenue streams. It wasn’t easy, but that plan gave us the clarity and confidence to make tough decisions quickly.

That experience taught me a valuable lesson: optimism is a fantastic quality, but it’s preparation that truly makes us resilient. Planning for the worst doesn’t mean expecting it to happen; it means ensuring that no matter what comes your way, you’re ready to face it head-on.

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• Your Unconventional Guide To Managing Working Capital

FP&A Leader | Digital Finance Advocate | Small Business Founder

Mike Dion brings a wealth of knowledge in business finance to his writing, drawing on his background as a Senior FP&A Leader. Over more than a decade of finance experience, Mike has added tens of millions of dollars to businesses from the Fortune 100 to startups and from Entertainment to Telecom. Mike received his Bachelor of Science in Finance and a Master of International Business from the University of Florida, laying a solid foundation for his career in finance and accounting. His work, featured in leading finance publications such as Seeking Alpha, serves as a resource for industry professionals seeking to navigate the complexities of corporate finance, small business finance, and finance software with ease.

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15 Financial KPIs And Metrics Every Business Should Track (+ Template)

Looking for some financial KPIs and metrics? 

Financial KPIs help CFOs and financial teams assess their company’s financial health and tell the story behind the company’s performance. However, every business manager should be able to read the financial signals and unlock strategic insights to identify opportunities for improvements that can affect the bottom line. 

This awareness gives you an opportunity to strengthen your strategic role in the business and surface insights that will drive business performance. 

But which metrics should you be focusing on? And most importantly, how should you track them to support data-driven decision-making at any given time? 

In this article, we share key financial KPIs that every business manager should know, as well as how to track them through real-time dashboards and KPI reports . 

What Are Financial KPIs?

Financial KPIs are a set of measurable values used by organizations and finance teams to measure and track their progress on specific business objectives . Monitoring these KPIs shows whether a business is achieving its financial goals. 

We've decided to kick things off with some of the most important examples of KPIs for running your business.

Those that relate to your financial performance . Whether you're a member of a finance team or not, these financial key performance indicators are critical to measure and understand the success of your business operations.

Financial KPI Examples 

Financial kpis for understanding your profitability.

These examples of KPIs are for helping you understand how well your business is performing in terms of profitability. This can help you benchmark both internally and externally as well as help you set growth targets over time.

Gross Profit Margin

Expresses your profits as a percentage of total sales revenues generated after subtracting the cost of goods sold (COGS). It gives you a high-level view of how much profit you're making.

The gross profit margin doesn't factor in all expenses and shouldn't be used for detailed decision-making. However, it’s useful for bench-marking your performance over time or comparing your profitability to another similar company.

Net Profit Margin (NPM)

NPM is the percentage of revenue remaining after operating expenses, interest, and taxes have been deducted from total revenue. It gives a more accurate understanding of profit at your company, but is less useful for making comparisons with other companies.

Financial KPIs: Monthly Recurring Revenue (MRR)

Monthly recurring revenue is a very popular financial metric for SaaS companies such as ours. This metric looks only at the revenue generated each month, which will re-occur with little to no additional investment required. For example, any customer who signs up for a recurring monthly subscription to Cascade increases our MRR.

Return on Equity (ROE)

Measures your net income against each unit of shareholder equity. In other words, ROE measures the amount of profit a company generates for each dollar of shareholder equity invested. Return on equity ratio not only provides a measure of your organization’s profitability but also its efficiency. It’s an important KPI because it provides investors with insight into how efficiently a company is using its equity to generate profits.

Financial KPIs For Understanding Your Liquidity

Being profitable is key, but if you're not able to pay your debts or stay liquid, you won't be around for long. These examples of finance KPIs will help do that.

Current Ratio

Current Ratio weighs your assets, such as accounts receivables, against your current liabilities, including accounts payable. The KPI is used to help you understand the solvency of your business.

Current Ratio formula = Current Assets / Current Liabilities

Quick Ratio

The quick ratio, also known as the acid test ratio , is a financial KPI that measures a company's ability to pay its short-term obligations using only its most liquid assets such as cash, marketable securities, and accounts receivable. The quick ratio is calculated by dividing the sum of a company's quick assets by its current liabilities. 

This KPI is essential for companies that operate in industries with volatile cash flows or cyclical demand patterns, as it can help them evaluate their ability to weather unexpected disruptions or delays in cash receipts.

Debt-To-Equity Ratio 

The debt-to-equity ratio measures a company's level of financial leverage and risk. A higher debt-to-equity ratio indicates that a company has more debt than equity, which increases its financial risk. On the other hand, a low debt-to-equity ratio indicates that a company has a strong balance sheet and a better ability to weather financial shocks. 

Investors, lenders, and management use this KPI to evaluate a company's creditworthiness and financial stability. 

Accounts Receivable Turnover

Accounts receivable turnover shows how well you collect what is owed to you by your customers. To calculate the KPI, take total earnings for a given period and divide them by average accounts receivable.

Monitoring this over time allows you to detect problems early. It will help you identify customers starting to take longer and longer to pay. You’ll soon see an impact on your own liquidity if this happens.

Runway and Burn Rate

The two KPIs work together to give you an idea of how much time you have for survival if sales were to cease completely in the worst-case scenario.

Divide the total amount of cash you have available by how much you spend each month—this is your burn rate .

Runway will tell you how much time you have before your company runs out of money. To calculate it, divide your total available cash by your burn rate.

Working Capital

Working capital measures a company's ability to meet its short-term obligations and manage its cash flow effectively. If a company's working capital is positive, it has enough liquid assets to meet its short-term liabilities. Having this information can help companies avoid financial distress such as missed payments, defaults, or bankruptcy.

Financial KPIs For Understanding Your Efficiency

If you're profitable and liquid, you've already passed some of the hardest tests in the business. Now is the time to optimize the efficiency of your business operations and look for opportunities to improve, which in turn will increase profitability and stability.

Revenue Per Employee

Employee costs usually make up the bulk of a company's expenses. Therefore,  it's often useful to measure how much revenue you are actually generating for each employee in your company.

You can then determine whether you're making an appropriate amount of revenue based on your business size.

Revenue Per Customer

This gives you an idea of how much gross revenue you make per customer. The method you use to calculate it will vary depending on your business.

As a SaaS business, we consider Life Time Value (LTV) based on what customers pay for their subscription and how long a subscription typically lasts. Another example might be a telecom company that offers services such as cable TV, internet, and phone. The company can calculate its revenue per customer by dividing its total revenue from these services by the total number of customers who subscribe to one or more of these services.

Revenue Growth Rate

This KPI helps ensure your business continues to grow at a target rate, measured by a percentage. Therefore, you would measure this monthly or on a 12-month rolling average basis.

A consistently high revenue growth rate can be a sign of a healthy and profitable company, while a declining revenue growth rate can indicate issues with the company's operations, competition, or market conditions.

Cash Conversion Cycle

Measures the time it takes to convert an investment in inventory or some other resource input into cash. This gives you an understanding of how long cash is tied up in inventory before the inventory is sold and cash is collected from customers.

Total Asset Turnover

The total asset turnover of a company shows how efficiently it uses its assets to generate revenue. In other words, the metric measures how much revenue a company generates for every dollar it owns. 

When a company has a high asset turnover ratio, it can generate more profits and grow faster than its competitors with similar asset bases. Companies with a low asset turnover ratio may be underutilizing their assets and may need to optimize their operations or divest inefficient assets. 

As an example, a ratio of .5 means that every dollar of assets generates 50 cents of sales.

Operating Cash Flow

Operating cash flow is an important financial KPI for businesses because it measures how well they generate cash from their core operations. 

With a strong operating cash flow, a company can invest in growth opportunities, repay debt, or return value to shareholders. In contrast, a company with negative operating cash flow may take steps to stay afloat by cutting costs, raising prices, or seeking external financing. 

How To Track Financial KPIs With Cascade?

Cascade is the ultimate strategy execution platform that empowers businesses to execute their strategies flawlessly. Our powerful tool comes with a range of features, including extensive KPI dashboards , real-time data integration, and analytics capabilities. 

Whether you’re an executive manager, CFO, or head of operations, Cascade provides the tools you need to make data-driven decisions and achieve your financial goals. 

👉Here’s how you can track KPIs in Cascade: 

1. Get your free financial strategy plan template

Sign up for Cascade and access your free template . The template will help you define your financial goals, objectives, and KPIs to measure success. 

Here’s a preview of your template: 

✨ More related templates: 

• Financial Risk Management Plan Template
• Sales Plan Template 
• Business Development Strategy Template 
• Business Acquisition Strategy Template 
• Investment Strategy Template 
• Strategic Cost Reduction Plan Template

2. Customize your data

While the Cascade template comes pre-filled with examples, you have the power to customize your data and financial metrics to ensure they are relevant to your specific business needs.

3. Integrate Cascade with your data sources

With Cascade, you have two options to track your KPIs: manually and automatically . 

The latter option is far more efficient, as it simplifies data collection and ensures you're working with accurate and up-to-date data. 

By integrating Cascade with your favorite business tools, such as Excel, Google Sheets, or Power BI, you can easily import your KPI data and keep your team in the loop. 

No more worrying about manual data entry or inaccuracies—let Cascade take care of the hard work for you.

4. Bring in your team

Send an invite to your team members to collaborate on shared KPIs and ensure everyone is on the same page. 

With Cascade, you can assign roles and responsibilities, set up notifications, and communicate with your retail teams in one place.

5. Start tracking performance with dashboards and reports

Cascade's powerful dashboards provide real-time visibility into your KPIs and allow you to quickly identify areas that need attention. 

With customizable widgets and drag-and-drop features, you can easily visualize and analyze key metrics to improve financial performance and operational efficiency.

Need to explain the “why” behind your financial KPIs? 

Using Cascade's strategy reports , you can choose a set of data and add context to it. By providing this context, your stakeholders will be able to make informed and data-driven decisions. 

You can customize the reports to fit your specific needs and drill down into the underlying reasons behind your financial performance. 

📚 Recommended read: How To Track KPIs To Hit Your Business Goals

Get Real-Time Visibility Into Your Financial Health With Cascade 🚀

Manually tracking all of the financial KPIs spread across multiple business tools is time-consuming, tedious, and leaves a ton of room for error. The lack of real-time visibility into your financial health and the highly competitive nature of your business environment can quickly lead you to lag behind. 

Cascade offers powerful reporting tools that make it easy to take total control of your financial reporting by doing the calculations and visualizations for you. 

By centralizing your financial data in one place that updates in real-time, you’ll always have an accurate picture of your business’s financial performance. 

Automating your financial reporting with Cascade will help you focus more time and energy on strategic work that will move your business forward.  

Ready to take it for a spin? Start today with a free forever plan or book a 1:1 product tour with Cascade’s in-house strategy expert. 

Editor’s note: We've been compiling a whole bunch of KPI examples as part of our KPI examples mini-series . This post is a small supplement to that series, which provides 12 of the most common financial KPIs, and  also includes a brief description of why you may want to use each.  

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Key financial indicators

Mette Johansen

Midweight Copywriter

Unlock Your Business Potential with OneMoneyWay

Key financial indicators every business should track for success..

Maintaining a clear picture of your company’s financial health in today’s fast-paced business environment is more crucial than ever. Whether a small business owner or a corporate executive, understanding and consistently monitoring key financial indicators can be the difference between thriving in your industry and struggling to keep up. These indicators offer a snapshot of your company’s financial performance, helping you make informed decisions, allocate resources efficiently, and strategise for growth. Keeping a close eye on these vital metrics ensures that your business remains agile and well-prepared to navigate any challenges. This blog post will explore the essential financial indicators every business should track, ensuring that you have the tools needed to steer your business towards sustained success.

What are key financial indicators?

Key financial indicators, often called KPIs (Key Performance Indicators), are specific metrics used to evaluate a business’s economic health and performance. These metrics provide critical insights into a company’s operations, including profitability, liquidity, efficiency, and solvency. Furthermore, they help businesses track progress towards financial goals, identify potential issues before they become critical, and make informed decisions that drive growth and sustainability.

For instance, a manufacturing firm focused on improving operational efficiency might prioritise the operating margin KPI to measure its core operations’ profitability. In contrast, a technology start-up aiming to scale rapidly could consider customer acquisition cost (CAC) as a crucial KPI to ensure sustainable growth while expanding its user base.

Categories of financial indicators

Financial indicators can be broadly categorised into several types, each serving a different purpose and providing unique insights into the company’s financial condition. Understanding these categories helps select the right KPIs to monitor, depending on your business’s specific needs and objectives.

Strategic KPIs

Strategic KPIs provide a high-level overview of business performance, often used by executives to gauge overall success. These include return on investment (ROI), profit margins, and total revenue. These indicators help evaluate whether the business is achieving its long-term strategic objectives, offering a broader perspective on its financial health.

Operational KPIs

Operational KPIs focus on the performance of specific processes, often measured more frequently, such as monthly or daily. These indicators include sales per region, product line performance, or production efficiency, providing insights into the day-to-day operations that drive overall business success. By monitoring these KPIs, businesses can make swift adjustments to optimise performance.

Functional KPIs

Functional KPIs are specific to individual departments within a business, such as finance, marketing, or operations. For example, the finance department may track accounts receivable turnover, while marketing may monitor the click-through rates of email campaigns. These indicators help assess the performance of specific functions within the company, enabling targeted improvements that contribute to the business’s overall success.

Leading and lagging indicators

Leading indicators predict future performance, offering insights into potential opportunities or risks. Lagging indicators, on the other hand, confirm past performance, allowing businesses to assess whether their strategies have been successful. Understanding these indicators’ differences is crucial for effective strategic planning, as it will enable companies to anticipate changes and respond proactively.

Essential financial indicators for businesses

Profitability ratios.

Profitability indicators help businesses evaluate how efficiently they generate profit relative to their revenue, costs, and equity. Examples include gross profit margin, which shows the percentage of income that exceeds the cost of goods sold, and net profit margin, which reflects overall profitability after all expenses. Return on equity (ROE) and return on assets (ROA) measure how effectively a company uses its equity and assets to generate profit. Monitoring these ratios provides a clear picture of financial success and areas for improvement.

Liquidity ratios

Liquidity indicators provide insights into a company’s ability to meet short-term obligations. The current ratio compares current assets to liabilities to assess whether a business can pay off its short-term debts. The quick ratio, or acid-test ratio, excludes inventory from current assets, focusing on the company’s most liquid assets. By maintaining strong liquidity ratios, businesses ensure they can weather financial challenges without disrupting operations.

Solvency ratios

Solvency indicators assess a company’s long-term financial stability by examining its ability to meet long-term obligations. The debt-to-equity ratio compares the company’s total debt to its shareholders’ equity, indicating the balance between debt and equity financing. The interest coverage ratio measures how easily a company can pay interest on its outstanding debt, providing insights into financial risk and sustainability. High solvency ratios indicate a healthy financial structure, which is vital for long-term success.

Efficiency ratios

Efficiency indicators measure how well a company manages its resources to generate revenue. Inventory turnover shows how often a company’s inventory is sold and replaced over a period, reflecting inventory management efficiency. Total asset turnover assesses how effectively a company uses its assets to generate sales, indicating overall resource utilisation. These ratios help pinpoint areas where operational efficiencies can be enhanced.

Cash flow indicators

Cash flow indicators focus on the cash generated by a company’s operations, which is crucial for maintaining liquidity and financial flexibility. Operating cash flow (OCF) represents the cash generated from the company’s core business activities, indicating whether it can sustain operations without external financing. Free cash flow (FCF) is the cash remaining after capital expenditures and is used to assess the company’s ability to invest in growth or return value to shareholders. By closely monitoring cash flow, businesses can ensure they have the financial agility to seize opportunities and mitigate risks.

How to use financial indicators to drive business strategy

To effectively leverage financial indicators in driving business strategy, it’s essential to integrate these metrics into every stage of your decision-making process. Here’s how you can do that:

Data collection and integrity

The foundation of using financial indicators effectively lies in accurate and reliable data. Start by ensuring your financial data is consistently collected, stored securely, and organised. Reliable accounting software or enterprise resource planning (ERP) systems can integrate various financial data sources into a single platform. This centralisation helps avoid discrepancies and ensures you are working with the most current and accurate data.

Analysis and interpretation

Once you have your data, the next step is to analyse it in the context of your business goals. Each financial indicator provides specific insights, but the real value comes from interpreting these metrics about one another and the broader market conditions. For example, a decline in net profit margin alongside a steady gross profit margin might indicate rising operating expenses, prompting a need to review cost structures.

It’s also crucial to compare your indicators against industry benchmarks. This comparison allows you to understand your company’s performance relative to competitors and identify areas for improvement or where you may have a competitive advantage.

Setting benchmarks and goals

For financial indicators to be actionable, they must be tied to specific benchmarks and goals. Benchmarks could be industry standards, past performance, or targets your strategic planning team set. Setting clear, measurable goals for each indicator helps track progress over time. For instance, if your goal is to improve liquidity, you might target increasing your current ratio from 1.5 to 2.0 over the next year.

These goals should be realistic yet challenging, motivating your team to optimise performance across different business areas. Regularly review these goals in light of changing market conditions and adjust them to remain relevant.

Incorporating financial indicators into decision-making

Financial indicators should be central to your strategic planning meetings and decision-making processes. For example, when considering a new investment, look at the potential impact on your ROI, cash flow, and debt-to-equity ratio. By evaluating these indicators, you can make more informed decisions that align with your company’s long-term strategy and financial health.

Moreover, financial indicators can help prioritise initiatives. For instance, if your efficiency indicators reveal a lag in inventory turnover, you might prioritise initiatives that improve supply chain management over others that do not directly impact this metric.

Continuous monitoring and adjustment

The business environment and financial indicators are dynamic. It’s not enough to set goals and forget about them. Continuous monitoring allows you to track real-time performance and make necessary adjustments. Utilise dashboards and reports that provide real-time updates on key financial indicators. This constant feedback loop helps catch potential issues early and adapt strategies to changing conditions.

Reviewing financial indicators regularly during quarterly or monthly meetings ensures that your strategy remains aligned with the current financial reality. This ongoing process helps maintain agility, allowing your business to respond quickly to new opportunities or threats.

The impact of ignoring financial indicators

Neglecting financial indicators can have far-reaching consequences that could threaten the very survival of a business. Here’s why:

Increased financial risk

Businesses need to monitor key financial indicators to avoid unexpected financial difficulties. For example, failing to track liquidity indicators such as the current or quick ratio might lead to cash flow problems, leaving the business unable to meet short-term obligations like paying suppliers or covering payroll. This can result in strained relationships with vendors, employees, and creditors, potentially leading to insolvency.

Missed growth opportunities

Ignoring profitability indicators such as net profit margin or ROE can prevent businesses from missing growth opportunities. With a clear understanding of your profitability, you may invest in areas that could drive growth or overspend on unprofitable ventures. For instance, a business might need to catch up on the signs that a product line is underperforming, continuing to invest in it instead of reallocating resources to more profitable areas.

Poor strategic decision-making

Financial indicators provide the quantitative backbone for strategic decision-making. With them, decisions are often based on intuition or complete information, which can lead to better outcomes. For example, a business might expand slowly without realising its debt levels are sustainable, leading to a financial crisis when it cannot service its debt.

Examples of business failures due to neglecting financial indicators

Numerous real-world examples highlight the dangers of ignoring financial indicators. For instance, many businesses that collapsed during economic downturns, such as the 2008 financial crisis, did so because they failed to monitor key solvency indicators, leading to excessive debt levels. Companies like Lehman Brothers ignored warning signs about their leverage ratios and risk exposure, ultimately leading to their downfall. This failure to heed the warning signs brought about the collapse of one of the largest investment banks and contributed to the global financial crisis.

Similarly, retail giants like Toys “R” Us faced bankruptcy partly because they did not adequately monitor their debt-to-equity ratio and liquidity indicators. Their inability to manage debt effectively and respond to changing market conditions left them vulnerable, ultimately leading to their collapse. The case of Toys “R” Us serves as a stark reminder that even established businesses can fall if they neglect to keep a close eye on their financial indicators.

Long-term consequences

The long-term consequences of neglecting financial indicators are often severe and irreversible. Persistent financial instability can erode investor confidence, making it harder to raise capital when needed. Additionally, it can lead to a downward spiral where increasing financial stress causes further poor decision-making, ultimately leading to business failure. Over time, the accumulated impact of ignoring these critical metrics can cause a business to lose its competitive edge, becoming more susceptible to market disruptions and financial shocks.

Moreover, a company’s reputation damage from financial instability can be long-lasting, affecting customer trust and employee morale. In a competitive market, competitors can exploit such weaknesses, leading to a loss of market share and relevance. A business that once thrives can quickly find itself struggling to retain customers and attract top talent, compounding its difficulties.

What is the meaning of critical financial indicators?

Key financial indicators are metrics used to evaluate a business’s economic health and performance. These indicators provide insights into various aspects of a company’s operations, such as profitability, liquidity, efficiency, and solvency, helping companies to make informed decisions and track progress towards financial goals. By understanding these indicators, companies can identify strengths and weaknesses in their economic performance and take proactive steps to improve.

How many financial indicators are there?

There is no fixed number of financial indicators, as they vary depending on a business’s specific needs and goals. However, common categories include profitability, liquidity, solvency, efficiency, and valuation indicators. Each category may contain several particular indicators, such as gross profit margin, current ratio, and return on equity (ROE). The choice of indicators depends on what aspects of financial health are most critical to a particular business.

What are KPIs for finance?

Key Performance Indicators (KPIs) for finance are metrics that help assess a business’s financial performance and health. Common financial KPIs include net profit margin, return on equity (ROE), current ratio, debt-to-equity ratio, and operating cash flow. These KPIs provide crucial insights into how well the company manages its finances, allowing managers to make informed decisions that align with its financial goals.

How do you set KPIs for a finance manager?

To set KPIs for a finance manager, start by aligning the KPIs with the company’s overall financial goals. Identify critical areas of responsibility, such as budgeting, forecasting, cost management, and financial reporting. Set measurable targets for each location, such as improving the net profit margin or reducing the debt-to-equity ratio, and ensure that these KPIs are realistic and time-bound. Regularly review and adjust these KPIs to reflect changes in the business environment, ensuring that they continue to drive the desired financial outcomes.

What is the best indicator of financial success?

The best indicator of financial success can vary depending on the context, but return on equity (ROE) is often considered a key measure. ROE evaluates how effectively a company uses its equity to generate profit, providing insight into its profitability and overall financial efficiency. High ROE generally indicates strong financial performance and effective management. However, it’s important to consider ROE alongside other indicators to understand financial success comprehensively.

Content Writer at OneMoneyWay

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The 5 Most Important Financial KPIs That Drive Business Strategy

Defining a strategy for your business is important—but so is measuring its success. That’s where financial metrics come in.

Part of running (and growing) a successful business is establishing the right business strategy. And part of crafting the right strategy for your business is knowing which key performance indicators (KPIs) you should use to inform that strategy—particularly when it comes to your finances.

A financial KPI can inform your business in many ways. For example, maybe you’re just getting things off the ground and rolling out your first strategic initiatives. You’ll need to measure the impact those initiatives have on your bottom line.

Maybe you’re getting ready to take your business to the next level. You’ll need financial data to help inform your plans to grow and scale. Or, let’s say you’ve had a strategy for your business in place for some time—but you’re not sure if it’s helping you achieve your goals. Digging into the numbers will help you determine whether to keep things moving forward as-is or if your strategy needs an upgrade.

So, how, exactly, can you use financial KPIs to inform your business strategy? And what are some financial KPI examples that are the most effective for driving strategic decisions?

First, Define Your Business Strategy

A business strategy is a clear, measurable plan that outlines, in detail, how to take your business from where you are now to where you want to go. You can lean on your strategy to achieve your business goals (for example, launching a new product or expanding your business to a new market), but it isn’t the same as a business goal.

If the goal is the destination, think of the strategy as the map to get there. When building a strategy, you’ll need to do the groundwork to:

• Clearly define your goals. Goals are the desired outcome—like becoming the top content marketing agency in the country.
• Clearly define your objectives. Objectives are the specific, measurable steps you’ll take to achieve your goal. If your goal is to become the top content marketing agency in the country, objectives might include hitting X dollars in revenue or closing X clients by the end of the year.

Once you can articulate your business goals and objectives, you’re ready to talk about how you’ll get there: the strategy. And what actions (also known as tactics) you’ll need to take—on a weekly, monthly, or quarterly basis—to get there.

Continuing with the content marketing agency example, that might mean pitching X potential clients each month, setting up an inbound marketing strategy to bring new leads into your business, or publishing thought leadership articles to gain more notoriety.

Related Articles

Long-Term vs. Short-Term Financial KPI Comparison

There are certain KPIs to monitor day-to-day to keep your business on track. These shorter-term KPIs, like operating cash flow , days sales outstanding, or current ratio, will give you key insights into the current financial health of your business. They can help you determine your next best step and how to keep your business moving forward in the immediate future.

But if you want your business to succeed in the long run, you’ll need to look at KPIs that inform long-term strategy. The data you uncover with these KPIs can help you:

• Determine whether you’re on track to reach your financial goals
• Evaluate the success of your strategy
• Pinpoint areas in your business that may need improvement
• Identify any opportunities and challenges
• Assess whether your customers are happy or not

Not All KPIs Are (Just) Financial

While financial metrics are important, you’ll also want to look at other KPIs. This includes KPIs that measure your team’s effectiveness (such as staff advocacy score) or customer satisfaction and loyalty (such as net promoter score). These KPIs can give you invaluable insights into your business. And though they’re not technically financial ratios, they can directly impact your revenue. So they’re also helpful from a financial standpoint.

The 5 Most Useful Financial KPIs for Business Strategy

Whatever your business goals, there are some financial key performance indicators you should be continually tracking and using to inform your business strategy. Other metrics beyond these financial KPI examples may also be helpful. But these are fundamental.

For each financial KPI, note the performance indicators that explain how to use the data. This helps you understand a good result versus something that needs improvement and how it could affect your business strategy.

1. Sales Growth Rate

Sales growth is one of the most basic barometers of success for a business. By monitoring the growth of your sales over time, you can identify which elements of your strategy are positively impacting sales and which are falling flat.

The formula to calculate sales growth rate is:

sales growth rate = (current net sales – previous net sales / previous net sales) x 100

Performance Indicators

You always want this KPI to be a positive percentage. That means your overall strategy is working. If your sales growth rate is negative, something about your strategy isn’t connecting with your customers—and it’s time to make a change.

For example, you own a restaurant and introduce one change in Q1: a new menu. If the net sales for your new menu in Q1 were $10,000—but the net sales in Q4, with your old menu, were $15,000—your sales growth rate would be -33.33%, or:

($10,000 – $15,000 / $15,000) x 100

Your new menu isn’t driving the results you’re looking for. Now you can take steps to increase sales—for example, reverting to your old menu or putting more effort and resources into promoting your new menu to customers.

2. Revenue Concentration

The best use of your time, energy, and resources are often the clients, customers, and projects that drive the most revenue for your business. That’s why revenue concentration is another must-track financial KPI for your business.

Revenue concentration helps you identify how much revenue each client or project produces for your business as a percentage of your total revenue. Using this financial KPI, you can determine the ROI for each client.

Calculating revenue concentration starts by analyzing your revenue streams . (Your FreshBooks Dashboard provides at-a-glance summaries of your income streams, making it easy to analyze them by client or service.)

Once you know how much revenue each client, project, or service is bringing into your business, you can use that data to calculate your revenue concentration. The formula to calculate revenue concentration is:

revenue concentration = (revenue by customer or project / total revenue) x 100

When you know which customers, clients, or projects are driving the most revenue (and which are not), you can shape your strategy around serving the clients and/or projects that will be the most financially lucrative.

For example, you own a copywriting business, and after analyzing your revenue streams, you realize that 80% of your income comes from white papers, while only 20% comes from other projects like blog posts or website copy.

So white papers are your big money-maker. Now you have data that supports focusing more aggressively on marketing your white paper writing services to potential clients.

Or maybe, after calculating this KPI, you realize that 75% of your revenue is coming from a single client. That’s a risky situation for a business owner. If you lose that client, you also lose most of your income.

In that situation, you could adjust your business strategy to focus on diversifying your client portfolio and spreading your revenue across a wider roster of clients.

3. Net Profit Margin

Profitability is one of the most important indicators of a company’s financial health. If you want your business to succeed in the long run, you need to be generating profit.

While several different profitability ratios can be useful—including gross profit margin and operating profit margin—net profit margin is a must.

Net profit margin measures how much profit your company makes after expenses. That includes operating expenses (like rent and utilities) and non-operating expenses (like taxes and debt payments).

Strategically speaking, the net profit margin gives you the bottom-line view of how profitable you are. If your business isn’t profitable, something needs to change. The formula to calculate net profit margin is:

net profit margin = (net income / revenue) x 100

Simply put, if your net profit margin is positive, you’re generating profit. You can either keep doing what you’re doing or adjust your strategy to increase your profitability.

4. Accounts Receivable Turnover

If your customers are dragging their feet and paying their invoices late (or not paying them at all!), it can seriously harm your financial health.

That’s why the accounts receivable turnover (a.k.a. debtor’s ratio) is an important KPI. It measures how well your clients pay their invoices within an allotted timeframe (for example, net 30 or net 60).

The formula for calculating annual accounts receivable turnover is:

accounts receivable turnover = net annual credit sales ÷ average accounts receivable

The KPI requires you to know your net credit sales, which are any amounts not paid upfront in cash. So, for a project-based business, that would typically be the payment owed for the completed project minus any retainer or fees paid at the start of the project.

It also requires you to calculate your average accounts receivable. That is:

(beginning accounts receivable + ending accounts receivable) ÷ 2

The accounts receivable turnover ratio shows you how many times your accounts receivable turned over in the time period you’re measuring.

By calculating your accounts receivable turnover for a year and dividing 365 days by the number of times per year your AR turns over, you will see how many days on average it takes for you to receive payments.

The higher your accounts receivable turnover, the fewer past-due invoices in your accounts on average, and the better your cash flow. It can also indicate that you have an efficient process for collecting payments from clients.

Lower isn’t always better with this KPI. Maybe your business can do just fine with payments within 15 or 30 days—and giving clients time to pay may contribute to customer retention. So, as long as the average number of days it takes your clients to pay is within that period, all is well.

If your accounts receivable turnover is too low—and customers take too many days to pay—you may start facing cash flow issues. To address the problem, you may need to examine your invoice payment terms , explore different payment methods, or take other actions to get paid faster .

5. Working Capital

As a business owner, you need cash to operate. This cash is called working capital , and it helps you meet your short-term financial obligations that keep your day-to-day operations going.

Understanding your working capital ratio will help you plan your future strategic moves, like hiring new team members to scale your business or investing in new equipment. It will also alert you to when you need funding to keep your business moving forward.

Working capital is calculated by comparing the company’s current assets to its liabilities. The formula for calculating working capital is:

working capital = current assets – current liabilities

If you have more assets than liabilities, you have positive working capital—which means you have enough cash on hand to cover your liabilities plus additional funds left over. On the flip side, if your liabilities are more than your assets, you have negative working capital. That means you don’t have enough money on hand to cover your financial obligations.

Both positive and negative working capital can give you key insights into the state of your business and the success of your business strategy. For example, if your working capital is extremely high (your assets far outweigh your liabilities), you’re not investing enough money into your business. You might create a business strategy to use some of your working capital to expand or target new clients in that scenario.

On the other hand, if you have negative working capital, you don’t have enough capital to cover your costs. You’ll need to adjust your strategy to focus on bringing more capital into the business—perhaps by applying for a business loan or increasing prices.

Use Financial KPIs to Drive Your Business Strategy

Hopefully, you now grasp the most important financial metrics to track for your long-term financial health, how to calculate them, and what they signal about your existing business strategy.

When used correctly, these financial key performance indicators can help inform how you work to achieve your business objectives. They’ll unlock insights that could easily be overlooked otherwise and ideally help your business grow faster and more effectively.

Written by Deanna deBara , Freelance Contributor

Posted on December 21, 2022

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14 Financial KPIs Every Small Business Owner Should Track (and Why)

TABLE OF CONTENTS

As a small business owner, you wear many hats. You’re the strategic visionary, salesperson, chief marketer, HR manager, supervisor and maybe even the front-line customer service rep. Not to mention you stay ahead of the competition, motivating your team and keeping up with industry trends.

That’s a lot to juggle and we haven’t even talked about the financial side of things. To change the world, you’ve got to keep the lights on, right?

Manage your company’s money easily by understanding and tracking the following 14 financial key performance indicators (KPIs):

• Operating cash flow
• Sales growth
• Earnings before interest and taxes (EBIT)
• Transaction error rate
• Current ratio
• Quick ratio (acid test)
• Gross profit margin
• Net profit margin
• Working capital
• Return on equity
• Debt-to-equity ratio
• Current accounts receivable
• Current accounts payable

So let’s dive into each of these financial KPIs, with examples, and review why they’re all crucial to your business.

1. Operating Cash Flow

There’s a reason this one is first on your cash-flow statements (and one of the best financial KPIs to track): It’s a way to tell if your business is earning enough to keep operating. Your operating cash flow is how much money your business earns through regular business activities.

The simplest way to track this is by adding up all your inflows (sales, invoices) and subtracting outflows (purchases, expenses , etc.). The remaining figure is your operating cash flow.

2. Sales Growth

This finance KPI is the percentage of revenue growth over a set period of time. For example, you can analyze sales growth by reviewing how much your revenue grew this year versus last year.

Would anyone want to invest in a company that was losing money year over year? Not likely.

3. Earnings Before Interest and Taxes (EBIT)

Another one of the most common financial KPIs, EBIT is a basic calculation of your income minus expenses, before you count any interest and taxes. It’s a basic gauge of profitability that tells you if you’re consistently spending more than you’re making.

4. Transaction Error Rate

A transaction error can be anything from a form being filled out incorrectly to money deposited in the wrong account or expenses not being properly tracked or deducted for income tax purposes. Transactions are funneled into 3 main categories: payable, billing and cash receipts.

Making errors is human nature, but too many can quickly erode your overall efficiency and have a harmful impact on profitability.

Track the error rate of each of the 3 transaction categories so you have an idea of where systems are breaking down if there is an issue.

In this financial KPI example from Accounting Tools , you can see the cash transaction error rate is 0.9% but the billing error rate is 12.6%. From this, we can surmise that something is happening in the billing software to cause such a high level of mistakes — and it’s costing you money.

5. Current Ratio

Another one of the top finance KPIs to make our list is current ratio, which is a measure of how solid your business is on a short-term basis, usually defined as 1 year. The current ratio shows whether you’re able to pay your upcoming obligations based on current revenue and the assets you own.

It isn’t a perfect measurement, but it gives you a quick glance at the stability of your business.

The formula to calculate this is current assets divided by current liabilities.

Ratios are judged based on industry averages, so if you’re in line with or slightly better off than most in your industry, banks are happy with that.

6. Quick Ratio (Acid Test)

Similar to the current ratio, a quick ratio (also known as an acid test) measures your current assets against short-term liabilities. However, it only counts assets that would be quick to sell, such as cash, cash equivalents (e.g., investment accounts) and occasionally accounts receivable.

7. Burn Rate

Not as fun as it sounds, this financial KPI’s meaning refers to how quickly your company is depleting your revenue — or burning through money.

Many startups don’t turn a net profit for months or even a year, as everything earned typically goes back into the business to improve the product or acquire new customers.

In cases like this, where profitability isn’t expected right away, investors look at how quickly a company is going through cash to get an idea of what its value is and how likely it is to turn a profit in the future. Additionally, the burn rate tells investors if the company is able to increase revenues through marketing efforts. It also tells them how far their investment will take the company in time.

Burn rate can be tracked with a monthly cash-flow statement, such as this example below from Corporate Finance Institute . You take your revenue and subtract expenses. If your remaining profit is in the negative, that’s the burn amount.

If you have $5,000 in cash assets to survive off of before you need to turn a profit (or get an investor), then your burn rate is that figure divided by the negative profit amount. In this case, it would be $5,000 / $500 = 10, meaning you have 10 months until you’ve burned through all your assets.

8. Gross Profit Margin

Gross profit margin is your overall revenue (sales) minus your cost of goods (COGS) sold.

Cost of goods sold will include different things depending on the business, but common things to factor in are your raw materials for making your product or delivering your service, plus factors such as overhead, electricity, equipment leases and, of course, labor.

9. Net Profit Margin

Net profit margin is where things get more specific, moving from a general show of profitability to a precise calculation of a company’s true profit.

This takes everything in the gross profit margin calculation above and adds in all other expenses, such as rent, sales and marketing.

This number is essentially how much you get to keep from every dollar your company earns, and it’s an important measure of profitability and efficiency.

10. Working Capital

Working capital KPIs are similar to quick ratios. However, working capital KPI is a short-term measure, like a snapshot of your business on any given week or month.

Working capital features all your current assets (cash, accounts receivable, inventory, etc.), minus your current liabilities (accounts payable, operating expenses).

If you’re regularly earning more than you spend, you should think about growth opportunities or ways to invest that capital.

11. Return on Equity

This financial performance indicator is key for attracting investors (and keeping your current ones happy).

Return on equity is your company’s net income divided by shareholder equity (or, in the case of a company without shareholders, the owner’s equity).

This number is a percent and reflects the financial growth for shareholders over the previous year.

This finance KPI shows your company is able to take in investments and actually turn a profit with them. It also shows precisely how much profit was generated by those investments.

12. Debt-to-Equity Ratio

Similar to the above, debt to equity is your company’s total liabilities divided by total shareholder equity.

This ratio is important for evaluating the risk level of your business, especially when it comes to seeking investment from others or trying to qualify for a business loan . If you’re overleveraged, most lenders will take a hard pass.

In the examples below from Investopedia , we can see the risk difference between Company 1 and Company 2. Company 1 has 5 times as much debt as it does revenue, which is a high risk for loan default. However, Company 2 earns twice as much as it owes, a safe bet for most lenders.

13. Current Accounts Receivable

14. current accounts payable.

This is all the money you owe in terms of vendor invoices, contractor bills or other business expenses. It doesn’t include your payroll.

Sometimes, you may choose to pay bills later than you normally would to accrue capital to use for other things. Other times, you may pay your bills instantly. Whatever your cash-flow goals, you should always pay bills before their due date.

Why These Financial KPIs Matter

We get it. You didn’t start your business to stare at spreadsheets and punch numbers into a calculator. When someone asks what you do, your eyes light up talking about the handmade products you create or the life-changing services you offer. They certainly don’t light up at the words “transaction error rate.”

But here’s the thing: You need to know and get excited about these numbers, too. Maybe not the level of excitement you have for your company’s purpose, but pretty close.

Why? Three little words: investment and growth.

Let’s say you want to expand your factory to produce more products and enter new markets. Or, lease a larger office space and hire more staff, allowing you to take on more clients.

Awesome, right? Until it comes time to get the money to make it happen.

Whether you seek business financing from a lender or go the investor route, the person on the end of the conversation isn’t interested in hearing you go on and on about how you import all of your production materials because only the best quality will do.

The lender or investor is interested in the cold, hard numbers. They’re asking themselves what your cash-flow KPIs look like, with questions such as the following:

• Is this person in a solid financial position to make this expansion successful?
• What is the risk level I’m taking by investing in this business?
• How does this business currently handle accounts? 
• Does this business have a proven track record of balanced budgets and paying vendors on time?

Without solid, irrefutable proof of those answers, it will be difficult (nearly impossible, actually) to secure a capital investment to make your business dreams a reality.

And if you think this article isn’t for you because you’re not planning on taking out a business loan or seeking an investor. Newsflash: The health of these financial KPIs directly equals the health of your company.

Grow Your Company By Knowing These Financial KPIs for Business

You can’t plan for your future growth — investment-seeking or not — without first knowing these top financial KPIs. To put it another way, you can’t grow what you don’t know.

Catchy rhymes aside, being unaware of these key figures is like taking a running stab in the dark at profitability, never knowing if you actually reach it.

Understanding the meaning of these financial KPIs for business can be the difference between success or failure in any industry.

It can also mean securing a life-changing business loan or investment to expand beyond your wildest dreams or watching the opportunity of a lifetime slip by, unable to act because no one will lend to you.

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Top 5 Financial KPIs and Metrics to Measure Business Performance

Measuring a company’s financial performance is vital for business leaders, investors, and other stakeholders. Financial metrics provide insights into the financial health and growth prospects of a business. By regularly tracking key financial performance indicators (KPIs), management can identify areas for improvement, adjust business strategy, and make informed decisions about the future of the company. This article outlines the top financial metrics and KPIs used to assess business performance across key areas like profitability, liquidity, efficiency, cash flow, growth, and valuation. It also provides a practical approach to analysing a company’s financial statements and performance.

Article Contents

Our top financial metrics, profitability kpis, liquidity kpis, efficiency kpis, solvency and credit kpis, valuation kpis, cash flow kpis, growth kpis, industry-specific considerations, discussing economic factors, tools and techniques for financial analysis, analysing financial performance: a practical approach, key takeaways.

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When looking at the financial health of a business, our go-to financial KPIs are:

• Example: If a company’s revenue increased from 1 million pounds one year to 1.2 million pounds the next, the revenue growth is simply £0.2m/£1m = 20% year-on-year. Monitoring this annual trend is a key business health indicator.
• Example: A company with total revenue of 500,000 pounds and a gross profit of 200,000 pounds has a gross profit margin of (200,000 pounds divided by 500,000 pounds) multiplied by 100 percent, equalling 40 percent.
• Example: With an operating profit (EBIT) of £150,000 and total revenue of £500,000, the operating margin is £150,000 / £500,000 = 30%.
• Example: A company with EBIT of £100,000, debt of £200,000, cash of £50,000 and equity (shareholders funds’) of £350,000 (so total net debt + equity = £500,000) results in an ROE of £100k/££500k = 20%.
• Example: A net profit of 100,000 pounds with 50,000 outstanding shares means an EPS of £100,000/ 50,000), equalling £2.00 per share.

Key Financial Performance Metrics and KPIs

Although these are our top 5, a fully balanced review of the financials and key performance indicators needs to be undertaken. Analysts will typically categorise these as follows:

Profitability metrics indicate the company’s ability to generate profits from its operations. Common profitability KPIs include:

• Gross profit margin = [Sales less Cost of Sales] / Revenue * 100%
• Operating margin = [Sales less Cost of Sales less Other Operating Expenses / Revenue] * 100%
• Net profit margin = Net Income / Revenue *100%

Return on capital employed

OCE is an important ratio for measuring quality of earnings: ROCE measures the ability of the company to generate a profit on the capital invested in it. All the denominator items are at cost NOT market value. You can think of ROCE as the “profit yield” of the company in the same way that a bond yield shows the return on a bond: if this company invests £1, what continuing profit can I expect on that? If a company has a ROCE of 4%, you might ask the question why we don’t close it down and put our money in the bank instead and earn 5.25% with less risk. A high ROCE vs. a peer group is an indicator of competitive advantage. If Tesco can make more profit per shop than Sainsbury (which is basically what ROCE tells us) – does that mean that Tesco is just a better more successful business? The obvious answer is yes. Analysts like ROCE as a measure of the strength of a business and of the sustainability of its earnings and their potential for growth.

“Underlying” profit, which excludes non-core and non-recurring items, is often taken to give a view on the core business profitability.

Liquidity ratios measure a company’s ability to pay short-term financial obligations and convert assets into cash. Key liquidity metrics include:

• Current ratio = Current assets / Current liabilities (if >1, it indicates that a company has sufficient short-terms (such as cash, receivables, and inventories) assets to cover its short-term liabilities
• Quick ratio = like the current ratio, but more conservative as it excludes inventories which may take longer to liquidate.
• Cash ratio = Cash / current liabilities. A very ‘harsh’ liquidity measure which will indicate the proportion of current liabilities a company could pay off even if receivables were not collected and inventory not sold.

Efficiency metrics show how well a company utilises its assets and manages overheads and working capital . Examples include:

• Inventory turnover = Cost of goods sold / inventory = an estimate of how many times the inventory would be turned over in one year (using annualised financials)
• Days sales outstanding = receivables / revenue *365. Indicating the average time (in days) taken to collect from our customers.
• Fixed asset turnover = revenue / fixed assets (e.g. PPE) shows you how efficiently the assets are generating revenue. Monitoring the trend is essential and note that a rising turnover could either indicate that the assets are generating more revenue (being more efficiently used, or a lower spare capacity) BUT it could also be a sign that a company has under-invested.
• T otal asset turnover = similar to Fixed asset turnover but including all operating assets (not financial assets as these do not generate revenue. They do generate income, but this will be included in Finance income and not Revenue!)

Solvency ratios indicate a company’s ability to meet long-term financial obligations. Key solvency metrics are:

Debt to equity ratio (“ gearing ”)- Total debt includes all debt on balance sheet. This is a useful basic measure of financial risk in a business, sector averages vary a lot, the average for the all-share index In the UK excluding financials is 56%.

Debt (gross or net) to EBITDA = a key leverage ratio monitored and used by ratings agencies and credit analysts. Industry sectors will support different levels of ‘normal’ leverage, but a good rule of thumb is that a ratio of >3 is ‘high’ and not such a good credit risk.

Total liabilities / net assets – This (not so common) balance sheet approach compares all on-balance-sheet liabilities with the net worth of the company and by this definition leverage for firms is a greater value than gearing. It is useful to draw out the fact that this ratio includes trade payables whilst gearing does not. In this way the leverage ratio is a useful check on firms that are perhaps over-extending their credit.

Interest coverage ratio = EBIT / Interest expense. This is a basic measure of financial risk and financial flexibility – EBIT/I or EBITDA/I are often covenants in loan agreements. For smaller businesses this is a better ratio than EBITDA/I.

Valuation metrics help assess the overall value and financial health of a business. Common valuation KPIs:

• Price/earnings ratio = share price / earnings per share. Comparing over time, or comparing to peers gives an indication relative value of the shares – do they look over or under priced? Why is that?
• Price/book ratio = share price / net asset value per share. If this ratio is relatively high, it is an indicator that the company is more attractive to investors. Why is that? Looking at this ratio alongside other ratios will give a clue. Perhaps it has better efficiency ratios, or better growth prospects?
• Enterprise value/EBITDA – a key corporate finance and valuation measure used to compare companies within the same industry and measure their relative valuation.

Cash flow KPIs measure the company’s ability to generate cash and liquidity. Examples include:

• Cash flow from operations – by comparing to operating profit in the P&L, it gives an indicator of a company’s ability to convert profit into cash.
• Free cash flow = although there are many different types of ‘free cash flow’ it is essentially cash flows that are freely available to return to investors if desired.  It is, at is basic level, Operating cash flows less capex less tax. Although capex may be seen as discretionary in its timing, it is an essential investment to maintain and grow the business, so it is a number that is essential to take out of free cash flows.

Growth ratios indicate improvement or decline in financial performance. A basic, but first indicator, of high-level health in a company. Typical growth metrics are:

• Revenue growth %
• Earnings growth %
• Net income growth %
• EPS growth %

Retail Sector

In the fast-paced retail environment, inventory turnover and days sales outstanding are critical metrics. High inventory turnover suggests efficient stock management and strong sales, whereas lower turnover may indicate overstocking or declining demand. Similarly, a lower days sales outstanding value implies quick collection of receivables, crucial for maintaining cash flow. Retail businesses also need to closely monitor gross profit margins to understand product profitability, especially in competitive markets where pricing strategies can significantly impact margins.

Manufacturing Sector

Efficiency metrics like total asset turnover are particularly relevant in the manufacturing industry. This sector often involves substantial investment in machinery and equipment, making it vital to assess how effectively these assets are being utilised to generate revenue. The debt-to-equity ratio also gains importance in manufacturing due to typically higher levels of capital investment, indicating the balance between debt and equity financing used to fund these assets. Additionally, operating margins are a key indicator of production efficiency and cost management in the manufacturing process.

Economic Downturns

During economic recessions, liquidity ratios like the current ratio and quick ratio gain prominence. These metrics are crucial for evaluating a company’s ability to meet short-term obligations, especially in times of reduced revenue or tightened credit conditions. A strong liquidity position can provide a buffer during downturns, enabling businesses to navigate financial challenges more effectively.

Inflationary periods can significantly impact financial metrics, particularly those related to costs and pricing. For example, rising costs due to inflation may reduce net profit margins if companies are unable to proportionately increase their prices. Understanding the impact of inflation on purchasing power and cost structures is essential for accurately interpreting profitability metrics.

Interest Rates

Changes in interest rates can affect several financial metrics, particularly for businesses with significant debt. An increase in interest rates will raise the cost of borrowing, impacting interest coverage ratios and potentially affecting a company’s solvency. Conversely, lower interest rates can reduce borrowing costs, positively impacting profitability and cash flow.

We have covered the fundamental key ratios above, to help analysts perform their job, but you may also hear of related techniques that enhance the analysis.

• Common Size Analysis : Converts financial statement line items into percentages of total assets/revenue for comparison.
• Trend Analysis : Review changes in financial metrics over time to identify trends.
• Ratio Analysis : Calculate key ratios for liquidity, profitability, efficiency, etc. Compare ratios to industry benchmarks.
• DuPont Analysis : Breaks down ROE into profit margin, asset turnover, and leverage factors to understand drivers.
• H orizontal/Vertical Analysis : Compare financial data across previous periods (horizontal) or within the same period (vertical).
• Benchmarking : Compare performance metrics and ratios to those of competitors and industry averages.

Here are some useful steps to help you think through a structure for analysing a company’s financial performance:

• Obtain financial statements for at least last 3 years and industry peer group data.
• Calculate key profitability, efficiency, liquidity, leverage, and cash flow ratios for each period.
• Perform common size analysis by calculating line items as % of revenue or assets.
• Conduct trend analysis to identify changes in ratios over time.
• Compare ratios to competitors and industry averages through benchmarking.
• Analyse causes behind trends and deviations to understand what is driving performance.
• Assess working capital, cash flow adequacy, and leverage to gauge short and long-term liquidity.
• Review company valuation multiples like P/E and P/B ratios relative to peers.
• Use DuPont analysis to break down drivers of ROE.
• Develop insights into company’s operating and financial strengths and weaknesses. Use a simple framework such as SWOT analysis, or Porter’s 5 forces model to help structure your insights.

Regular financial analysis using key metrics, ratios and tools provides vital insights into a company’s financial condition and performance trends. Financial KPIs help assess current performance and project future results to support strategic decisions.

Learn to Evaluate Performance, Assess Opportunities, and make Smart Investments

Financial kpi faqs, what is a financial kpi.

A financial KPI is a quantifiable measure used to evaluate a company’s financial performance over time. Financial KPIs provide insights into a business’s profitability, liquidity, efficiency, and overall financial health.

What is an example of a KPI in finance?

Some examples of financial KPIs include:

• Gross profit margin
• Net profit margin
• Current ratio
• Debt-to-equity ratio
• Accounts receivable turnover
• Inventory turnover
• Earnings per share (EPS)

What is an Annuity?

Annuities are an essential concept in both individual finance and corporate finance contexts. A simple annuity is a series of

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Financial Metrics & KPIs

Metrics & KPIs for modern finance teams

Track all your Financial KPIs in one place

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What are Financial Metrics?

Financial metrics are used to evaluate and assess the financial performance, health, and stability of a company or an investment. These metrics are derived from a company's financial statements, such as the balance sheet, income statement, and cash flow statement. They help investors, analysts, and management make informed decisions regarding the company's operations, financial position, and future prospects.

Common examples of financial metrics include revenue, net income, earnings per share (EPS), return on investment (ROI), return on equity (ROE), price-to-earnings (P/E) ratio, and debt-to-equity ratio. By analyzing these metrics, stakeholders can gain insights into a company's profitability, efficiency, liquidity, solvency, and overall financial performance.

Grow your business and monitor your fiscal accounting health

Whether you are a successful Fortune 1000 enterprise or an ambitious startup, success depends on generating revenue and managing your key financial metrics. Stakeholders, investors, and customers look to financial data and KPIs to assess the performance and viability of your business model.

Use these financial KPIs and ratios to create dashboards to track the health of your business.

What are the top 3 key financial metrics in any company?

There are 3 top financial metrics that are important in every company: revenue, net profit, and burn rate.

Revenue is the income generated through your business’ primary operations, often referred to as the “top line.” Net profit is the dollar value that remains after all expenses are subtracted from your company’s total income, often referred to as the “bottom line.” Net burn , or burn rate, is the amount of money a company loses per month as they burn through cash reserves.

Here are the key financial metrics and KPIs that you can add to a dashboard to track the financial health of your business.

Best Financial Metrics

The top KPIs for modern finance and accounting teams:

Current Ratio

• Gross Margin
• Earnings Before Interests, Taxes, Depreciation, and Amortization (EBITDA)
• Annual Recurring Revenue
• CAC Payback Period
• Customer Lifetime Value
• Revenue Per Employee
• MRR Growth Rate

As we wrap up our exploration of financial metrics and KPIs, it's crucial to remember that keeping a close eye on these indicators is the key to unlocking insights into your organization's financial well-being. By staying in tune with these metrics, you'll be better equipped to make strategic decisions that foster growth and financial stability.

To further your knowledge and expertise in KPI analysis and implementation, we invite you to check out our extensive resource on KPI examples & templates . This handpicked collection showcases a variety of visual examples and easy-to-adapt templates aimed at helping you effectively measure, analyze, and enhance your organization's financial performance.

Accounts Payable Turnover Ratio

Accounts Receivable Turnover Ratio

Current Accounts Receivable and Accounts Payable

Debt-to-Equity Ratio

Gross Profit Margin

Income and Expenses (Last 12 Months)

Inventory Turnover Ratio

Net Profit Margin

Build custom dashboards for you and your team.

5 financial metrics every small business owner should track

There are five key performance indicators (KPIs) in finance you should focus on when you start a business —your profit margin, cash flow, cost of goods sold, accounts receivable turnover, and current ratio. These business health metrics are helpful for tracking your profitability, how efficiently you’re purchasing goods and receiving payments, and how capable you are of repaying short-term debts.

What you need to know

• Profit margin indicates your overall financial performance and investment value in three forms: gross, operating, and net profit.
• Cost of goods sold (COGS) measures how much it costs to produce your products, and is important when analyzing profit margins and considering business loans.
• Accounts receivable turnover measures how efficiently you’re collecting payments, and the current ratio assesses whether your business is able to pay short-term liabilities.

1. Profit margin

Use your profit margins to calculate the return on investments (ROI) for any of your projects, and help inform your next steps, financially. There are three different types of profit, with slightly different ways to measure them:

• Gross profit is the balance remaining after subtracting production costs from revenue. 
• Net profit is your gross profit minus expenses and costs, including taxes. Also known as net income. 
• Operating profit is your revenue minus cost of goods sold (COGS), operating expenses, depreciation, and amortization.

Gross profit and net profit are revenue growth metrics, while operating profit is a reportable number on your company’s income statement. The first two are internal financial performance indicators. The third is for your shareholders, investors, or—if you’re a publicly traded company—the general public.

2. Cash flow

Cash flow is the lifeblood of every business—if it’s disrupted, your company won’t function properly. You or your accounting team will detail your cash flow in statements covering three following categories: 

• Cash flow from operating activities – buying/selling goods or providing services, daily operations
• Cash flow from investing activities – buying/selling long-term assets
• Cash flow from financing activities – issuing/repurchasing stock, paying dividends

To find each type of cash flow for a period, total that cash flow stream, then subtract that value from your total cash balance at the start of the period. This number is published along with the income statement, balance statement, and statement of shareholder equity.

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3. Cost of goods sold (COGS)

Cost of goods sold (COGS) measures the percentage of gross revenue consumed by production costs, such as materials, labor, distribution, and sales costs. Your COGS directly affects your company’s profit margin and growth, and therefore offers insights for cost analysis in business decisions, such as renegotiating with suppliers or finding a new source.

COGS can also justify a small business loan for expansion or restructuring. In some cases, lenders may review your current COGS to see if debt financing is the best solution.

4. Accounts receivable turnover

Accounts receivable turnover measures the time between billing a client and receiving their payment. This metric is important for making sure your inflows cover your outflows—for example, if you have repayments due on a business loan before you receive your next payment. 

Accounts receivable turnover is expressed as a ratio of average monthly accounts receivable to net credit sales for a chosen period. A high turnover ratio means your collection process is efficient, while a low turnover ratio indicates that you need to shorten your accounts receivable process.

5. Current ratio

The current ratio is calculated by dividing your current assets (cash, cash equivalents, accounts receivable, inventory, securities, prepaid liabilities) by current liabilities (debts due within one year). It’s a useful liquidity ratio for assessing your ability to repay short-term debts, which is important when raising money, preparing for an IPO, or applying for a business loan .

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7 Financial Forecasting Methods to Predict Business Performance

• 21 Jun 2022

Much of accounting involves evaluating past performance. Financial results demonstrate business success to both shareholders and the public. Planning and preparing for the future, however, is just as important.

Shareholders must be reassured that a business has been, and will continue to be, successful. This requires financial forecasting.

Here's an overview of how to use pro forma statements to conduct financial forecasting, along with seven methods you can leverage to predict a business's future performance.

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What Is Financial Forecasting?

Financial forecasting is predicting a company’s financial future by examining historical performance data, such as revenue, cash flow, expenses, or sales. This involves guesswork and assumptions, as many unforeseen factors can influence business performance.

Financial forecasting is important because it informs business decision-making regarding hiring, budgeting, predicting revenue, and strategic planning . It also helps you maintain a forward-focused mindset.

Each financial forecast plays a major role in determining how much attention is given to individual expense items. For example, if you forecast high-level trends for general planning purposes, you can rely more on broad assumptions than specific details. However, if your forecast is concerned with a business’s future, such as a pending merger or acquisition, it's important to be thorough and detailed.

Forecasting with Pro Forma Statements

A common type of forecasting in financial accounting involves using pro forma statements . Pro forma statements focus on a business's future reports, which are highly dependent on assumptions made during preparation⁠, such as expected market conditions.

Because the term "pro forma" refers to projections or forecasts, pro forma statements apply to any financial document, including:

• Income statements
• Balance sheets
• Cash flow statements

These statements serve both internal and external purposes. Internally, you can use them for strategic planning. Identifying future revenues and expenses can greatly impact business decisions related to hiring and budgeting. Pro forma statements can also inform endeavors by creating multiple statements and interchanging variables to conduct side-by-side comparisons of potential outcomes.

Externally, pro forma statements can demonstrate the risk of investing in a business. While this is an effective form of forecasting, investors should know that pro forma statements don't typically comply with generally accepted accounting principles (GAAP) . This is because pro forma statements don't include one-time expenses—such as equipment purchases or company relocations—which allows for greater accuracy because those expenses don't reflect a company’s ongoing operations.

7 Financial Forecasting Methods

Pro forma statements are incredibly valuable when forecasting revenue, expenses, and sales. These findings are often further supported by one of seven financial forecasting methods that determine future income and growth rates.

There are two primary categories of forecasting: quantitative and qualitative.

Quantitative Methods

When producing accurate forecasts, business leaders typically turn to quantitative forecasts , or assumptions about the future based on historical data.

1. Percent of Sales

Internal pro forma statements are often created using percent of sales forecasting . This method calculates future metrics of financial line items as a percentage of sales. For example, the cost of goods sold is likely to increase proportionally with sales; therefore, it’s logical to apply the same growth rate estimate to each.

To forecast the percent of sales, examine the percentage of each account’s historical profits related to sales. To calculate this, divide each account by its sales, assuming the numbers will remain steady. For example, if the cost of goods sold has historically been 30 percent of sales, assume that trend will continue.

2. Straight Line

The straight-line method assumes a company's historical growth rate will remain constant. Forecasting future revenue involves multiplying a company’s previous year's revenue by its growth rate. For example, if the previous year's growth rate was 12 percent, straight-line forecasting assumes it'll continue to grow by 12 percent next year.

Although straight-line forecasting is an excellent starting point, it doesn't account for market fluctuations or supply chain issues.

3. Moving Average

Moving average involves taking the average—or weighted average—of previous periods⁠ to forecast the future. This method involves more closely examining a business’s high or low demands, so it’s often beneficial for short-term forecasting. For example, you can use it to forecast next month’s sales by averaging the previous quarter.

Moving average forecasting can help estimate several metrics. While it’s most commonly applied to future stock prices, it’s also used to estimate future revenue.

To calculate a moving average, use the following formula:

A1 + A2 + A3 … / N

Formula breakdown:

A = Average for a period

N = Total number of periods

Using weighted averages to emphasize recent periods can increase the accuracy of moving average forecasts.

4. Simple Linear Regression

Simple linear regression forecasts metrics based on a relationship between two variables⁠: dependent and independent. The dependent variable represents the forecasted amount, while the independent variable is the factor that influences the dependent variable.

The equation for simple linear regression is:

Y ⁠ = Dependent variable⁠ (the forecasted number)

B = Regression line's slope

X = Independent variable

A = Y-intercept

5. Multiple Linear Regression

If two or more variables directly impact a company's performance, business leaders might turn to multiple linear regression . This allows for a more accurate forecast, as it accounts for several variables that ultimately influence performance.

To forecast using multiple linear regression, a linear relationship must exist between the dependent and independent variables. Additionally, the independent variables can’t be so closely correlated that it’s impossible to tell which impacts the dependent variable.

Qualitative Methods

When it comes to forecasting, numbers don't always tell the whole story. There are additional factors that influence performance and can't be quantified. Qualitative forecasting relies on experts’ knowledge and experience to predict performance rather than historical numerical data.

These forecasting methods are often called into question, as they're more subjective than quantitative methods. Yet, they can provide valuable insight into forecasts and account for factors that can’t be predicted using historical data.

6. Delphi Method

The Delphi method of forecasting involves consulting experts who analyze market conditions to predict a company's performance.

A facilitator reaches out to those experts with questionnaires, requesting forecasts of business performance based on their experience and knowledge. The facilitator then compiles their analyses and sends them to other experts for comments. The goal is to continue circulating them until a consensus is reached.

7. Market Research

Market research is essential for organizational planning. It helps business leaders obtain a holistic market view based on competition, fluctuating conditions, and consumer patterns. It’s also critical for startups when historical data isn’t available. New businesses can benefit from financial forecasting because it’s essential for recruiting investors and budgeting during the first few months of operation.

When conducting market research, begin with a hypothesis and determine what methods are needed. Sending out consumer surveys is an excellent way to better understand consumer behavior when you don’t have numerical data to inform decisions.

Improve Your Forecasting Skills

Financial forecasting is never a guarantee, but it’s critical for decision-making. Regardless of your business’s industry or stage, it’s important to maintain a forward-thinking mindset—learning from past patterns is an excellent way to plan for the future.

If you’re interested in further exploring financial forecasting and its role in business, consider taking an online course, such as Financial Accounting , to discover how to use it alongside other financial tools to shape your business.

Do you want to take your financial accounting skills to the next level? Consider enrolling in Financial Accounting —one of three courses comprising our Credential of Readiness (CORe) program —to learn how to use financial principles to inform business decisions. Not sure which course is right for you? Download our free flowchart .

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Free Financial Templates for a Business Plan

By Andy Marker | July 29, 2020

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In this article, we’ve rounded up expert-tested financial templates for your business plan, all of which are free to download in Excel, Google Sheets, and PDF formats.

Included on this page, you’ll find the essential financial statement templates, including income statement templates , cash flow statement templates , and balance sheet templates . Plus, we cover the key elements of the financial section of a business plan .

Financial Plan Templates

Download and prepare these financial plan templates to include in your business plan. Use historical data and future projections to produce an overview of the financial health of your organization to support your business plan and gain buy-in from stakeholders

Business Financial Plan Template

Use this financial plan template to organize and prepare the financial section of your business plan. This customizable template has room to provide a financial overview, any important assumptions, key financial indicators and ratios, a break-even analysis, and pro forma financial statements to share key financial data with potential investors.

Download Financial Plan Template

Word | PDF | Smartsheet

Financial Plan Projections Template for Startups

This financial plan projections template comes as a set of pro forma templates designed to help startups. The template set includes a 12-month profit and loss statement, a balance sheet, and a cash flow statement for you to detail the current and projected financial position of a business.

‌ Download Startup Financial Projections Template

Excel | Smartsheet

Income Statement Templates for Business Plan

Also called profit and loss statements , these income statement templates will empower you to make critical business decisions by providing insight into your company, as well as illustrating the projected profitability associated with business activities. The numbers prepared in your income statement directly influence the cash flow and balance sheet forecasts.

Pro Forma Income Statement/Profit and Loss Sample

Use this pro forma income statement template to project income and expenses over a three-year time period. Pro forma income statements consider historical or market analysis data to calculate the estimated sales, cost of sales, profits, and more.

‌ Download Pro Forma Income Statement Sample - Excel

Small Business Profit and Loss Statement

Small businesses can use this simple profit and loss statement template to project income and expenses for a specific time period. Enter expected income, cost of goods sold, and business expenses, and the built-in formulas will automatically calculate the net income.

‌ Download Small Business Profit and Loss Template - Excel

3-Year Income Statement Template

Use this income statement template to calculate and assess the profit and loss generated by your business over three years. This template provides room to enter revenue and expenses associated with operating your business and allows you to track performance over time.

Download 3-Year Income Statement Template

For additional resources, including how to use profit and loss statements, visit “ Download Free Profit and Loss Templates .”

Cash Flow Statement Templates for Business Plan

Use these free cash flow statement templates to convey how efficiently your company manages the inflow and outflow of money. Use a cash flow statement to analyze the availability of liquid assets and your company’s ability to grow and sustain itself long term.

Simple Cash Flow Template

Use this basic cash flow template to compare your business cash flows against different time periods. Enter the beginning balance of cash on hand, and then detail itemized cash receipts, payments, costs of goods sold, and expenses. Once you enter those values, the built-in formulas will calculate total cash payments, net cash change, and the month ending cash position.

Download Simple Cash Flow Template

12-Month Cash Flow Forecast Template

Use this cash flow forecast template, also called a pro forma cash flow template, to track and compare expected and actual cash flow outcomes on a monthly and yearly basis. Enter the cash on hand at the beginning of each month, and then add the cash receipts (from customers, issuance of stock, and other operations). Finally, add the cash paid out (purchases made, wage expenses, and other cash outflow). Once you enter those values, the built-in formulas will calculate your cash position for each month with.

‌ Download 12-Month Cash Flow Forecast

3-Year Cash Flow Statement Template Set

Use this cash flow statement template set to analyze the amount of cash your company has compared to its expenses and liabilities. This template set contains a tab to create a monthly cash flow statement, a yearly cash flow statement, and a three-year cash flow statement to track cash flow for the operating, investing, and financing activities of your business.

Download 3-Year Cash Flow Statement Template

For additional information on managing your cash flow, including how to create a cash flow forecast, visit “ Free Cash Flow Statement Templates .”

Balance Sheet Templates for a Business Plan

Use these free balance sheet templates to convey the financial position of your business during a specific time period to potential investors and stakeholders.

Small Business Pro Forma Balance Sheet

Small businesses can use this pro forma balance sheet template to project account balances for assets, liabilities, and equity for a designated period. Established businesses can use this template (and its built-in formulas) to calculate key financial ratios, including working capital.

Download Pro Forma Balance Sheet Template

Monthly and Quarterly Balance Sheet Template

Use this balance sheet template to evaluate your company’s financial health on a monthly, quarterly, and annual basis. You can also use this template to project your financial position for a specified time in the future. Once you complete the balance sheet, you can compare and analyze your assets, liabilities, and equity on a quarter-over-quarter or year-over-year basis.

Download Monthly/Quarterly Balance Sheet Template - Excel

Yearly Balance Sheet Template

Use this balance sheet template to compare your company’s short and long-term assets, liabilities, and equity year-over-year. This template also provides calculations for common financial ratios with built-in formulas, so you can use it to evaluate account balances annually.

Download Yearly Balance Sheet Template - Excel

For more downloadable resources for a wide range of organizations, visit “ Free Balance Sheet Templates .”

Sales Forecast Templates for Business Plan

Sales projections are a fundamental part of a business plan, and should support all other components of your plan, including your market analysis, product offerings, and marketing plan . Use these sales forecast templates to estimate future sales, and ensure the numbers align with the sales numbers provided in your income statement.

Basic Sales Forecast Sample Template

Use this basic forecast template to project the sales of a specific product. Gather historical and industry sales data to generate monthly and yearly estimates of the number of units sold and the price per unit. Then, the pre-built formulas will calculate percentages automatically. You’ll also find details about which months provide the highest sales percentage, and the percentage change in sales month-over-month. 

Download Basic Sales Forecast Sample Template

12-Month Sales Forecast Template for Multiple Products

Use this sales forecast template to project the future sales of a business across multiple products or services over the course of a year. Enter your estimated monthly sales, and the built-in formulas will calculate annual totals. There is also space to record and track year-over-year sales, so you can pinpoint sales trends.

Download 12-Month Sales Forecasting Template for Multiple Products

3-Year Sales Forecast Template for Multiple Products

Use this sales forecast template to estimate the monthly and yearly sales for multiple products over a three-year period. Enter the monthly units sold, unit costs, and unit price. Once you enter those values, built-in formulas will automatically calculate revenue, margin per unit, and gross profit. This template also provides bar charts and line graphs to visually display sales and gross profit year over year.

Download 3-Year Sales Forecast Template - Excel

For a wider selection of resources to project your sales, visit “ Free Sales Forecasting Templates .”

Break-Even Analysis Template for Business Plan

A break-even analysis will help you ascertain the point at which a business, product, or service will become profitable. This analysis uses a calculation to pinpoint the number of service or unit sales you need to make to cover costs and make a profit.

Break-Even Analysis Template

Use this break-even analysis template to calculate the number of sales needed to become profitable. Enter the product's selling price at the top of the template, and then add the fixed and variable costs. Once you enter those values, the built-in formulas will calculate the total variable cost, the contribution margin, and break-even units and sales values.

Download Break-Even Analysis Template

For additional resources, visit, “ Free Financial Planning Templates .”

Business Budget Templates for Business Plan

These business budget templates will help you track costs (e.g., fixed and variable) and expenses (e.g., one-time and recurring) associated with starting and running a business. Having a detailed budget enables you to make sound strategic decisions, and should align with the expense values listed on your income statement.

Startup Budget Template

Use this startup budget template to track estimated and actual costs and expenses for various business categories, including administrative, marketing, labor, and other office costs. There is also room to provide funding estimates from investors, banks, and other sources to get a detailed view of the resources you need to start and operate your business.

Download Startup Budget Template

Small Business Budget Template

This business budget template is ideal for small businesses that want to record estimated revenue and expenditures on a monthly and yearly basis. This customizable template comes with a tab to list income, expenses, and a cash flow recording to track cash transactions and balances.

Download Small Business Budget Template

Professional Business Budget Template

Established organizations will appreciate this customizable business budget template, which  contains a separate tab to track projected business expenses, actual business expenses, variances, and an expense analysis. Once you enter projected and actual expenses, the built-in formulas will automatically calculate expense variances and populate the included visual charts. 

‌ Download Professional Business Budget Template

For additional resources to plan and track your business costs and expenses, visit “ Free Business Budget Templates for Any Company .”

Other Financial Templates for Business Plan

In this section, you’ll find additional financial templates that you may want to include as part of your larger business plan.

Startup Funding Requirements Template

This simple startup funding requirements template is useful for startups and small businesses that require funding to get business off the ground. The numbers generated in this template should align with those in your financial projections, and should detail the allocation of acquired capital to various startup expenses.

Download Startup Funding Requirements Template - Excel

Personnel Plan Template

Use this customizable personnel plan template to map out the current and future staff needed to get — and keep — the business running. This information belongs in the personnel section of a business plan, and details the job title, amount of pay, and hiring timeline for each position. This template calculates the monthly and yearly expenses associated with each role using built-in formulas. Additionally, you can add an organizational chart to provide a visual overview of the company’s structure. 

Download Personnel Plan Template - Excel

Elements of the Financial Section of a Business Plan

Whether your organization is a startup, a small business, or an enterprise, the financial plan is the cornerstone of any business plan. The financial section should demonstrate the feasibility and profitability of your idea and should support all other aspects of the business plan. 

Below, you’ll find a quick overview of the components of a solid financial plan.

• Financial Overview: This section provides a brief summary of the financial section, and includes key takeaways of the financial statements. If you prefer, you can also add a brief description of each statement in the respective statement’s section.
• Key Assumptions: This component details the basis for your financial projections, including tax and interest rates, economic climate, and other critical, underlying factors.
• Break-Even Analysis: This calculation helps establish the selling price of a product or service, and determines when a product or service should become profitable.
• Pro Forma Income Statement: Also known as a profit and loss statement, this section details the sales, cost of sales, profitability, and other vital financial information to stakeholders.
• Pro Forma Cash Flow Statement: This area outlines the projected cash inflows and outflows the business expects to generate from operating, financing, and investing activities during a specific timeframe.
• Pro Forma Balance Sheet: This document conveys how your business plans to manage assets, including receivables and inventory.
• Key Financial Indicators and Ratios: In this section, highlight key financial indicators and ratios extracted from financial statements that bankers, analysts, and investors can use to evaluate the financial health and position of your business.

Need help putting together the rest of your business plan? Check out our free simple business plan templates to get started. You can learn how to write a successful simple business plan  here . 

Visit this  free non-profit business plan template roundup  or download a  fill-in-the-blank business plan template  to make things easy. If you are looking for a business plan template by file type, visit our pages dedicated specifically to  Microsoft Excel ,  Microsoft Word , and  Adobe PDF  business plan templates. Read our articles offering  startup business plan templates  or  free 30-60-90-day business plan templates  to find more tailored options.

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More From Forbes

7 critical business performance indicators to monitor closely.

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Director of product-led growth at CHEQ.ai.

You have all your business objectives outlined and your strategies to achieve them. You might have even put them into practice already. But how do you know whether your business is performing as expected or if you’re on track to achieve your goals?

To measure output and evaluate the effectiveness of your strategies, you need to monitor business performance indicators quantitatively. These seven crucial indicators below will tell you all you need to know about your business’s progress:

The most reliable metric a business can use to analyze its financial status is net profit.

Net profit is the amount that remains after deducting a company’s expenses, taxes and interest payments over a given period. It is a financial metric used to conduct a competitive analysis of businesses in the industry.

For this purpose, net profit must be converted into a percentage of revenue—the net profit margin. Businesses must stay ahead of the average net profit margin in their industry to remain competitive. Anything below the average means you are in poor financial status.

Conversion Rate

Conversion rate measures the number of visitors to your website or online store that became paying customers. It is a crucial metric to study how well your sales strategies are working and how appealing your products are to your target audience. The conversion rate is a multifaceted metric that can tell you many things about your business’s overall performance.

To help visitors convert, it’s important to reassess your checkout process. Things like long sign-up forms and an overly complicated checkout process can keep visitors from following through with a purchase.

Customer Satisfaction

Happy and satisfied customers directly affect other metrics on this list. Their engagement and enthusiasm are signs that your customer satisfaction strategies are working, such as better customer service, product development or website development.

Customer satisfaction can be measured in many ways, including surveys, reviews, repeat purchases and more.

Client Retention Rate

Customer acquisition is an expensive and time-consuming task, and it should be matched with exemplary customer retention and retargeting strategies. Together, they bring customers to a business and keep them for years to come.

Client retention rate will show you how many of your customers are satisfied with your products and services, to the point where they keep coming back and spending money. A healthy retention rate means you have a broad base of loyal customers, which tends to lead to an increase in ROI and new customers.

Employee Retention Rate

Employees are crucial to the success of any business considering how they affect day-to-day operations and long-term success. Unfortunately, they are often the most neglected element.

Employee retention rate is an all-encompassing metric that can measure engagement and satisfaction. It measures the number of employees that have stayed with your company.

A good employee retention rate indicates a healthy business with processes in place for success. A poor employee retention rate is a glaring sign that the company is wasting its resources on hiring, training and absorbing new employees. This will prevent a company from utilizing its resources to drive growth.

Quick Ratio

A quick ratio is a financial health indicator that measures a company’s ability to meet short-term obligations with liquid assets. It is also known as the acid test ratio .

Liquid assets can be easily converted into cash in the short term. Short-term obligations generally cover short-term debts or employee and supplier payments.

A healthy quick ratio means a company can tackle a liquidity crisis without having to sell its less liquid assets or seek bankruptcy protection.

Revenue Growth

All businesses aim to achieve higher revenue year after year. This is best measured through financial metrics such as revenue growth.

Revenue sources include all the money a business makes from sales, investments, fees, royalties and more. Revenue growth evaluates your strategies targeted toward achieving higher sales and earnings.

These indicators are typically tracked by businesses using financial reporting tools and business analytics software.

These are seven critical business performance indicators you must monitor if you’re looking to grow and continue finding success in the long term. They are also a great starting point if you’re trying to formulate strategies for the next financial year.

Use these indicators to outline your business objectives and measure your performance against them.

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12 Key Financial Performance Indicators You Should Be Tracking

Topics: Small Business Advice and Tips , outsourced accounting services , business strategy , key performance indicators , KPIs , professional services

Your business's Key Performance Indicators (KPIs) are your tools for measuring and tracking progress in essential areas of company performance. Your KPIs provide you with a general picture of the overall health of your business. Acquiring insights afforded by your KPIs allows you to be proactive in making necessary changes in under-performing areas, preventing potentially serious losses. The KPI quantification then allows you to measure the effectiveness of your efforts. This process ensures the long-term sustainability of your company's operating model, and helps increase your business's value as an investment.

The first priority is to identify and understand the overall impact that the various financial realities represented by your KPI numbers have on your business. Then, use the insights you acquire from these invaluable financial management performance indicators to identify and implement changes that correct problems with policies, processes, personnel, or products that are impacting one or more of your KPI values.

Primary KPIs that you're undoubtedly already using include revenue, expense, gross profit, and net profit. Here are other key indicators that should be tracked, analyzed, and acted upon as needed.

1. Operating Cash Flow

Monitoring and analyzing your Operating Cash Flow is an essential for understanding your ability to pay for deliveries and routine operating expenses. This KPI is also used in comparison with total capital you have in use—an analysis that reveals whether or not your operations are generating sufficient cash for support of capital investments you are making to advance your business.

The analysis of your ratio of operating cash flow compared to your total capital employed gives you deeper insight into your business's financial health, allowing you to look beyond just profits, when making capital investment decisions.

2. Working Capital

Cash that is immediately available is "working capital". Calculate your Working Capital by subtracting your business's existing liabilities from its existing assets. Cash on hand, accounts receivable, short-term investments are all included, as well as accounts payable, accrued expenses, and loans are all part of this KPI equation.

This especially meaningful KPI informs you of the condition of your business in terms of its available operating funds, by showing the extent to which your available assets can cover your short-term financial liabilities.

3. Current Ratio

While the Working Capital KPI discussed above subtracts liabilities from assets, the Current Ratio KPI divides total assets by liabilities to give you an understanding the solvency of your business—i.e., how well your company is positioned to meet its financial obligations consistently on time and to maintain a level of credit rating that is required to order to grow and expand your business.

4. Debt to Equity Ratio

Debt to Equity is a ratio calculated by looking at your business's total liabilities in contrast to your shareholders' equity (net worth). This KPI indicates how well your business is funding its growth and how well you are utilizing your shareholders' investments. The number indicates how profitable the business is. It tells you and your shareholders how much debt the business has accrued in effort to become profitable. A high debt-to-equity ratio reveals a practice of paying for growth by accumulating debt. This critical KPI helps you focus on your financial accountability.

5. LOB Revenue Vs. Target

This KPI compares your revenue for a line of business to your projected revenue for it. Tracking and analyzing discrepancies between the actual revenues and your projections helps you understand how well a particular department is performing financially. This is one of the two primary factors in the calculation of the Budget Variance KPI—the comparison between projected and actual operating budget totals, which is necessary in order for you to budget more accurately for needs.

6. LOB Expenses Vs. Budget

Comparing actual expenses to the budgeted amount produces this KPI. The comparison helps you understand where and how some budgeted spending went off track, so that you can budget more effectively going forward. Expenses vs. Budget is the other primary factor of the Budget Variance KPI. Knowing the amount of variance between the total assumed and total actual ratio of revenues to expenses helps you become an expert on the relationship between your business's operations and finances.

7. Accounts Payable Turnover

The Accounts Payable Turnover KPI shows the rate at which your business pays off suppliers. The ratio is the result of dividing the total costs of sales during a period (the costs your company incurred while supplying its goods or services), by your average accounts payable for that period.

This is a very informative ratio when compared over multiple periods. A declining accounts payable turnover KPI may indicate that the length of time your company is taking to pay off its suppliers is increasing and that action is required in order to keep your good standing with your vendors, and to enable your business to take advantage of significant time-driven discounts from vendors.

8. Accounts Receivable Turnover

The accounts receivable turnover KPI reflects the rate at which your business is successfully collecting payments due from your customers. This KPI is calculated by dividing your total sales for a period by your average accounts receivable for that period. This number can serve as an alert that corrections need to be made in managing receivables, in order to bring payment collections within appropriate timeframes.

9. Inventory Turnover

Inventory continuously flows in and out of your production and warehousing facilities. It can be hard to visualize the amount of turnover that is actually taking place. The inventory turnover KPI allows you to know how much of your average inventory your company has sold in a period. This KPI is calculated by dividing sales within a given period by your average inventory in the same period. The KPI gives you a picture of your company's sales strength and production efficiency.

10. Return on Equity

The Return on Equity (ROE) KPI measures your company's net income in contrast to each unit of shareholder equity (net worth). By comparing your company's net income to its overall wealth, your ROE indicates whether or not your net income is appropriate for your company's size.

Regardless of how much your company is currently worth (its net worth), your current net income will determine its probable worth in the future. Therefore, your business's ROE ratio both informs you of the amount of your organization’s profitability and quantifies its general operational and financial management efficiency. An improving, or high ROE clearly indicates to your shareholders that their investments are being optimized to grow the business.

11. Quick Ratio

Your Quick Ratio KPI measures your organization's ability to utilize its highly liquid assets to immediately meet your business's short-term financial responsibilities. This is the measurement of your company’s wealth and financial flexibility. It is understood as a more conservative evaluation of a business's fiscal health than the Current Ratio, because calculation of the Quick Ratio excludes inventories from assets.

This Quick Ratio KPI has the popular nickname of "Acid Test" (after the nitric acid test used in detecting gold). Similarly, the Quick Ratio  is a quick and easy way of assessing the wealth and health of your company. If you’ are a new adopter of KPIs, the Quick Ratio KPI is a good approach to getting a quick view of your business’s overall health.

12. Customer Satisfaction

While budget-linked KPIs are important, the ultimate indicator of a company's potential for long-term success is in its Customer Satisfaction quantification. The Net Promoter Score (NPS) is the result of calculating the various levels of positive response that customers provide on very brief customer satisfaction surveys. The NPS a simple and accurate measurement of likely rates of customer retention (future sales to current customers) across your revenue base, and of potential for generating referral business to grow that base.

Additional Key Indicators

Certain other KPIs should be tracked in specific operational areas of finance, marketing, production, purchasing, customer services, and others. For examples:

• Marketing KPIs — Cost Ratio of Customer Acquisition to Lifetime Value, Lifetime Value, Customer Acquisition Cost, and others, Customer Profitability Score, Relative Market Share.
• Recurring Revenue Metrics — income and expense areas, such as recurring service contract fees, subscription fees, product maintenance fees, Revenue Growth Rate, Cash Conversion Cycle.
• Recurring Revenue Overview — include Recurring Revenue Proportion, Recurring Revenue Growth Rate, Recurring Revenue Exit Rate.
• LOB Efficiency Measure — Operating Cycle Time (production rate), Capacity Utilization Rate, Process Downtime Level, Human Capital Value Added, Employee Engagement Level, Quality Index.
• Finance Department — Operational KPIs should also include obscure indicators such as Finance Error Report KPI, Payment Error Rate KPI. And, a variety of indicators in areas of billing and transaction management, collections, and others.

KPI failures can occur due to any one of a number of reasons:

• Usually, the most readily identifiable are inefficiencies in planning, or human error.
• Customizing a KPI without thoroughly vetting it for its actual practical value to the business can lead to problematic results. Such a KPI can distract you and your entire team from focus on true indicators of performance, and send your business in a wrong direction.
• Misusing KPIs can happen by over-emphasizing the KPI number itself, and under-emphasizing the real-world operational contributors that generate the numbers. This syndrome can lead to unclear business strategies for improving the parts of operations that underlie the numbers.

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KPIs: What Are Key Performance Indicators? Types and Examples

What Are Key Performance Indicators (KPIs)?

Key performance indicators (KPIs) are quantifiable measurements used to gauge a company’s overall long-term performance. KPIs specifically help determine a company’s strategic, financial, and operational achievements, especially compared to those of other businesses within the same sector. They can also be used to judge progress or achievements against a set of benchmarks or past performance.

Key Takeaways

• Key performance indicators (KPIs) measure a company’s success vs. a set of targets, objectives, or industry peers.
• KPIs can be financial, including net profit (or the bottom line, net income), revenues minus certain expenses, or the current ratio (liquidity and cash availability).
• Customer-focused KPIs generally center on per-customer efficiency, customer satisfaction, and customer retention.
• Process-focused KPIs aim to measure and monitor operational performance across the organization.
• Businesses generally measure and track KPIs through analytics software and reporting tools.

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Understanding Key Performance Indicators (KPIs)

Key performance indicators are used in business to judge performance and progress toward specific, measurable goals. They may be compared to:

• A predetermined benchmark
• Other competitors within the industry
• The performance of the business over time

Also referred to as key success indicators (KSIs), KPIs vary between companies and between industries, depending on performance criteria. For example, a software company striving to attain the fastest growth in its industry may consider year-over-year (YOY) revenue growth as its chief performance indicator. Conversely, a retail chain might place more value on same-store sales as the best KPI metric for gauging growth.

At the heart of KPIs lie data collection, storage, cleaning, and synthesizing. The KPI data is gathered and compared to whatever target has been set. The results of that comparison then are analyzed and used to draw conclusions about how well current systems, or recent changes to those systems, are working to achieve the department or business's goals. This lets management know whether the current systems are effective or whether to make changes to improve those outcomes and meet future goals.

The goal of KPIs is to communicate results succinctly to allow management to make more informed strategic decisions. They are often measured using analytics software and reporting tools.

The information from key performance indicators may be financial or nonfinancial and may relate to any department across a company, or the performance of the business as a whole.

Companies can use KPIs across three broad levels.

Company-wide KPIs focus on the overall business health and performance. These types of KPIs are useful for informing management of how operations stand in the company as a whole. However, they are often not granular enough to make decisions. Company-wide KPIs often kick off conversations on why certain departments are performing well or poorly.

Department-level KPIs are more specific than company-wide KPIs and often provide information on why specific outcomes are occurring. Companies often dig into department-level KPIs to better understand the results of company-wide KPIs. For example, if overall revenue is down, a company may want to look at customer conversion or satisfaction rates in specific departments.

Project or Sub-Department

If a company chooses to dig even deeper, it may engage with project-level or subdepartment-level KPIs. These KPIs often must be requested by management as they may require very specific data sets that may not be readily available. For example, management may want to ask a control group about a potential product rollout .

Common Types of of Key Performance Indicators

Most KPIs fall into four broad categories. Each category has its own characteristics, time frame, and level of business that is likely to use it. Different KPIs may also be used by different departments within the same business.

Strategic KPIs are usually the most high-level. These types of KPIs may indicate how a company is doing, although they don't provide much information beyond a high-level snapshot.

Executives are most likely to use strategic KPIs. Examples include return on investment , profit margin , and total company revenue .

Operational

Operational KPIs are focused on a tight time frame. These KPIs measure how a company is doing month over month, or sometimes day over day, by analyzing different processes, segments, or geographical locations.

Operational KPIs are often used by managing staff and to analyze questions that are derived from analyzing strategic KPIs. For example, if an executive notices that company-wide revenue has decreased, they may investigate which product lines are struggling.

Functional KPIs hone in on specific departments or functions within a company. For example, a finance department may keep track of how many new vendors they register within their accounting information system each month. A marketing department measures how many clicks each email distribution receives.

These types of KPIs may be strategic or operational. What sets them apart is that they provide the greatest value to one specific set of users.

Leading/Lagging

Leading/lagging KPIs describe the nature of the data being analyzed and whether it is signaling something to come or something that has already occurred. Leading KPIs indicate a change that is coming in the future. Lagging KPIs indicate a change that has already happened.

Examples of these are the number of overtime hours worked and the profit margin for a flagship product. The number of overtime hours worked may be a leading KPI should the company begin to notice poorer manufacturing quality. Alternatively, profit margins are a result of operations and are considered a lagging indicator.

Financial Metrics

Key performance indicators tied to the financials typically focus on revenue and profit margins. Net profit, the most tried and true of profit-based measurements, represents the amount of revenue that remains, as profit for a given period, after accounting for all of the company’s expenses, taxes, and interest payments for the same period.

Financial metrics may be drawn from a company’s financial statements. However, internal management may find it more useful to analyze different numbers that are more specific to analyzing the problems or aspects of the company that management wants to analyze. For example, a company may leverage variable costing to recalculate certain account balances for internal analysis only.

Examples of financial KPIs include:

• Liquidity ratios : KPIs that measure how well a company will manage short-term debt obligations based on the short-term assets it has on hand. Also known as current ratios , which divide current assets by current liabilities.
• Profitability ratios : KPIs that measure how well a company is performing in generating sales while keeping expenses low. An example is the net profit margin.
• Solvency ratios : KPIs that measure the long-term financial health of a company by evaluating how well a company will be able to pay long-term debt. An example is the total debt-to-total-assets ratio .
• Turnover ratios : KPIs that measure how quickly a company can perform a certain task. For example, inventory turnover measures how quickly a company can convert an item from inventory to a sale. Companies strive to increase turnover to generate faster churn of spending cash to later recover that cash through revenue.

Customer Experience Metrics

Customer -focused KPIs generally center on per-customer efficiency, customer satisfaction, and customer retention. These metrics are used by customer service teams to better understand the service that customers have been receiving.

Examples of customer-centric metrics include:

• Number of new ticket requests : Counts customer service requests and measures how many new and open issues customers are having.
• Number of resolved tickets : Counts the number of requests that have been successfully taken care of . By comparing the number of requests to the number of resolutions, a company can assess its success rate in getting through customer requests.
• Average resolution time : The average amount of time needed to help a customer with an issue. Companies may choose to segment average resolution time across different requests (i.e., technical issue requests vs. new account requests).
• Average response time : The average amount of time needed for a customer service agent to first connect with a customer after the customer has submitted a request. Though the initial agent may not have the knowledge or expertise to provide a solution, a company may value decreasing the time that a customer is waiting for any help.
• Top customer service agent : A combination of any metric above cross-referenced by customer service representatives. For example, in addition to analyzing company-wide average response time, a company can determine the three fastest and slowest responders.
• Type of request : A count of the different types of requests. This KPI can help a company better understand the problems a customer may have (i.e., the company’s website gave incorrect or inaccurate directions) that need to be resolved by the company.
• Customer satisfaction rating : Many companies may perform surveys or post-interaction questionnaires to gather additional information on the customer’s experience, though this is a vague and imprecise measurement.

KPIs are usually not externally required; they are internal measurements used by management to evaluate a company’s performance.

Process Performance Metrics

Process metrics aim to measure and monitor operational performance across the organization. These KPIs analyze how tasks are performed and whether there are process, quality, or performance issues or improvements to be made.

These types of metrics are most useful for companies with repetitive processes, such as manufacturing firms or companies in cyclical industries. Examples of process performance metrics include:

• Production efficiency : Often measured as the production time for each stage divided by the total processing time. For example, a company may strive to spend only 2% of its time soliciting raw materials. If it discovers it takes 5% of the total process, the company knows that area needs to be improved.
• Total cycle time : The total amount of time needed to complete a process from start to finish. This may be converted to average cycle time if management wishes to analyze a process over an extended period.
• Throughput : The number of units produced divided by the production time per unit, measuring how fast the manufacturing process is.
• Error rate : The total number of errors divided by the total number of units produced. A company striving to reduce waste can use this metric to understand the number of items that are failing quality control testing.
• Quality rate : A measure of the items produced that pass quality control checks. By dividing the successful units completed by the total number of units produced, this percentage informs management of its success rate in meeting quality standards.

Marketing Metrics

Marketing KPIs attempt to gain a better understanding of how effective marketing and promotional campaigns have been. These metrics often measure conversation rates, or how often prospective customers perform certain actions in response to a given marketing medium. Examples of marketing KPIs include:

• Website traffic : The number of people who visit certain pages of a company’s website. Management can use this KPI to better understand whether online traffic is being pushed down potential sales channels and whether or not customers are being funneled appropriately.
• Social media traffic : Tracks the views, follows, likes, retweets, shares, engagement, and other measurable interactions between customers and the company’s social media profiles.
• Conversion rate on call-to-action content : Measures how well promotional programs convert customers to perform certain actions, such as a campaign to encourage purchases during a sale. A company can divide the number of successful engagements by the total number of content distributions to understand what percentage of customers answered the call to action.
• Articles published : The number of blog posts or print articles a company publishes in a given timeframe, such as a month or a quarter.
• Click-through rates : The number of specific clicks that are performed on email distributions. Programs may track how many customers opened an email, how many opened the email and clicked on a link, and how many clicked on the link and followed through with a sale.

Any department within a company can be improved to increase efficiency and employee satisfaction. This includes how the internal technology (IT) department is operating. These KPIs can indicate whether the IT department is adequately staffed. Examples of IT KPIs include:

• Total system downtime : The amount of time that various systems must be taken offline for system updates or repairs. While systems are down, customers may be unable to place orders or employees may be unable to perform certain duties, which can slow operations and harm customer service.
• Number of tickets/resolutions : The resolution of tickets related to internal staff requests such as hardware or software needs, network problems, or other internal technology problems. This is similar to customer service KPIs.
• Number of developed features : Quantifying the number of product changes to internal software or systems in order to measure internal product development.
• Count of critical bugs : The number of critical problems within systems or programs. A company will need to have internal standards for what constitutes a minor vs. major bug.
• Back-up frequency : How often critical data is duplicated and stored in a safe location. Management may set different targets for different bits of information depending on record retention requirements.

Sales Metrics

The ultimate goal of a company is to generate revenue through sales. Though revenue is often measured through financial KPIs, sales KPIs take a more granular approach by leveraging nonfinancial data to better understand the sales process. Examples of sales KPIs include:

• Customer lifetime value (CLV) : The total amount of money that a customer is expected to spend on your products over the entire business relationship.
• Customer acquisition cost (CAC) : The total sales and marketing cost required to land a new customer. By comparing CAC to CLV, businesses can measure the effectiveness of their customer acquisition efforts.
• Average dollar value for new contracts : The average size of new agreements. A company may have a desired threshold for landing larger or smaller customers.
• Average conversion time : The amount of time from first contacting a prospective client to securing a signed contract to perform business.
• Number of engaged leads : How many potential leads have been contacted. This metric can be further divided into mediums such as visits, emails, phone calls, meetings, or other contacts with customers.

Management may tie bonuses to KPIs. For salespeople, their commission rate may depend on whether they meet expected conversion rates or engage in an appropriate number of leads.

Human Resource and Staffing Metrics

Companies may also find it beneficial to analyze KPIs specific to their employees. Ranging from turnover to retention to satisfaction, a company generally has a wealth of information available about its staff. Examples of human resource or staffing KPIs include:

• Absenteeism rate : How many dates per year or specific period employees are calling out or missing shifts. This KPI may be a leading indicator for disengaged or unhappy employees. It can also help managers plan for seasonal staffing variation, such as times of year when employees are more likely to be sick.
• Number of overtime hours worked : The number of overtime hours worked to gauge whether employees are potentially facing burnout or if staffing levels are appropriate.
• Employee satisfaction : A gauge of how employees are feeling about various aspects of the company, often performed via survey. To get the best value from this KPI, companies should consider using the same survey questions every year to track changes from one year to the next.
• Employee turnover rate : How often and quickly employees are leaving their positions. Companies can further break down this KPI across departments or teams to determine why some positions may be leaving faster than others.
• Number of applicants : How many applications are submitted to open job positions. This KPI helps assess whether job listings are adequately reaching a wide enough audience to capture interest and lure strong candidates.

How to Create a KPI Report

It can be difficult to sort through the vast quantities of information collected by a company and determine which KPIs are most useful and impactful for decision-making. When beginning the process of pulling together KPI dashboards or reports, consider the following steps:

• Establish goals and intentions . KPIs are only as useful as the users make them. Before pulling together any KPI reports, establish specific goals, then pick the KPIs that will inform achieving those goals.
• Draft SMART KPI requirements . Vague, hard-to-ascertain, and unrealistic KPIs serve little to no value. Instead, focus on what information you have that is available and SMART (specific, measurable, attainable, realistic, and time-bound).
• Be adaptable . As you pull together KPI reports, be prepared for new business problems to appear and for further attention to be given to other areas. As business and customer needs change, KPIs should also adapt, with numbers, metrics, and goals changing in line with operational evolutions.
• Avoid overwhelming users . It may be tempting to overload report users with as many KPIs as you can fit on a report. At a certain point, KPIs start to become difficult to comprehend, and it may become more difficult to determine which metrics are important to focus on. Create separate reports if necessary, each focusing on a specific problem or goal.

When preparing KPI reports, start by showing the highest level of data (i.e., company-wide revenue). Next, be prepared to show lower levels of data (i.e., revenue by department, then revenue by department and product).

Advantages of Key Performance Indicators

A company may wish to analyze KPIs for several reasons.

• Encourage actionable goals : Tracking and analyzing KPIs effectively requires knowing what you are trying to achieve. This can encourage businesses to set specific, actionable goals and create systems that help meet those goals, rather than creating systems without knowing what purpose they serve.
• Data-driven solutions : KPIs help inform management of specific problems and find solutions for them. The data-driven approach provides quantifiable information useful in strategic planning and ensuring operational excellence.
• Improve accountability : KPIs help hold employees accountable. Instead of relying on feelings or emotions, KPIs are statistically supported and cannot discriminate across employees. When used appropriately, KPIs may help encourage employees as they realize their numbers are being closely monitored.
• Measure progress : KPIs connect business goals to actual operations. A company may set targets, but without the ability to track progress toward those goals, there is little to no purpose in those plans. KPIs allow companies to set objectives, and then monitor progress toward those objectives.

Limitations of Key Performance Indicators

There are some downsides to consider when working with KPIs.

• Time commitment : There may be a long time frame required for KPIs to provide meaningful data. For example, a company may need to collect annual data from employees for years to better understand trends in satisfaction rates.
• Require regular follow-up : KPIs require constant monitoring and close follow-up to be useful. A KPI report that is prepared but never analyzed serves no purpose. In addition, KPIs that are not continuously monitored for accuracy and reasonableness do not encourage beneficial decision making.
• Subject to manipulation : KPIs open up the possibility for managers to “game” KPIs. Instead of focusing on actually improving processes or results, managers may feel incentivized to focus on improving KPIs tied to performance bonuses .
• Risk of incentivizing wrongly : If management seems to care more about numbers than actual results, quality may decrease as managers are hyper-focused on productivity KPIs. Employees also may feel pushed too hard to meet specific KPI measurements that may not be reasonable.

Encourage actionable goals

Data-driven solutions

Improve accountability

Measure progress

Time commitment

Require regular follow-up

Subject to manipulation

Risk of incentivizing wrongly

What Does KPI Mean?

A KPI is a key performance indicator: data that has been collected, analyzed, and summarized to help decision-making in a business. KPIs may be a single calculation or value that summarizes a period of activity, such as “450 sales in October.” By themselves, KPIs do not add any value to a company. However, by comparing KPIs to set benchmarks, such as internal targets or the performance of a competitor, a company can use this information to make more informed decisions about business operations and strategies.

What Is an Example of a KPI?

One of the most basic examples of a KPI is revenue per client (RPC). For example, if you generate $100,000 in revenue annually and have 100 clients, then your RPC is $1,000. A company can use this KPI to track its RPC over time.

What Are 5 of the Most Common KPIs?

KPIs vary from business to business, and some KPIs are more suitable for certain companies compared to others. Five KPIs that are commonly used across a variety of business are:

• Revenue growth
• Revenue per client
• Profit margin
• Client retention rate
• Customer satisfaction

What Makes a KPI Good?

A good KPI provides objective and clear information on progress toward an end goal. It tracks and measures factors such as efficiency, quality, timeliness, and performance while providing a way to measure performance over time. The ultimate goal of a KPI is to help management make informed decisions.

Key performance indicators are metrics that businesses track and analyze to understand performance and meet actionable goals. Commonly used KPIs include financial, customer service, process, sales, and marketing metrics.

By understanding exactly what KPIs are and how to implement them properly, managers are better able to optimize the business for long-term success.

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Financial Forecast in a Business Plan

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on September 12, 2024

Are You Retirement Ready?

Table of contents, what is a financial forecast in a business plan.

A financial forecast in a business plan is a projection of the expected financial performance of a company over a specific period, often annually or quarterly. It provides insights into anticipated revenues, expenses, capital investments, and cash flows.

Rooted in both historical data and assumptions about future market conditions, this forecast helps stakeholders, including investors, lenders, and company leaders, gauge the business's potential profitability and financial health.

By comparing actual financial results with the forecast, businesses can identify gaps, make informed decisions, and adjust strategies accordingly.

Moreover, a well-constructed financial forecast demonstrates the company's understanding of its market and adds credibility to the business plan, increasing the likelihood of securing investments or loans.

In essence, it's a vital tool for planning, budgeting, and ensuring that a business remains on a sustainable financial trajectory.

Components of a Financial Forecast in a Business Plan

Sales and revenue forecast.

Businesses thrive on sales. Projecting future sales provides a cornerstone to any financial forecast. By analyzing market trends, past sales data, and growth strategies, businesses can predict revenue inflows.

This, in turn, dictates everything from inventory purchases to hiring strategies. In the ever-evolving marketplace, an accurate sales forecast is integral for optimal resource allocation and to prevent overhead costs that can cripple an enterprise.

Expense Forecast

As businesses strategize for growth, understanding expenditures becomes crucial. These can be both fixed, like rents and salaries, and variable, such as utility bills or raw material costs.

External factors like inflation, geopolitical scenarios, and supply chain disruptions can also influence business expenses. Therefore, an accurate expense forecast not only ensures sustainability but also charts out profitability margins.

Profit and Loss Statement (P&L Forecast)

Herein lies the essence of any business—profits. The P&L forecast provides a clear picture of the company's anticipated net profit or loss over a set period.

Distinguishing between gross profit, operational profit, and net profit helps streamline operations and understand where the bulk of revenues or costs stem from. A keen eye on this forecast can lead to timely interventions, ensuring financial stability.

Cash Flow Forecast

Cash is the lifeblood of a business. The cash flow forecast paints a picture of a business's liquidity by tracking both incoming and outgoing cash.

A well-managed cash flow ensures operational sustainability. A business might be profitable on paper, but if it lacks the liquidity to manage its immediate expenses, it can face significant hurdles.

Balance Sheet Forecast

A forward-looking balance sheet gives stakeholders a snapshot of a company's projected financial health, encompassing assets, liabilities, and owner’s equity.

Regularly updating and reviewing the balance sheet forecast can assist businesses in making informed financial decisions, whether it's taking on debt or making significant investments.

Capital Expenditure Forecast

For businesses looking towards expansion or major investments, the capital expenditure forecast is indispensable. It involves predictions related to expenses on assets that will benefit the business in the long run, like machinery, buildings, or technology.

Crucially, evaluating the potential return on these investments ensures that they generate value over time.

Importance of Financial Forecast in a Business Plan

Guide business strategies.

Financial forecasts are not just passive documents; they drive action. The insights derived from these forecasts shape a company's tactical and strategic decisions, ensuring alignment with financial expectations and goals.

Secure External Funding

For startups or businesses looking to expand, external funding often becomes essential. A robust financial forecast showcases the business's potential to prospective investors or lenders, bolstering its credibility and signaling its viability.

Risk Management

Financial projections serve as an early warning system. They highlight potential financial pitfalls, allowing businesses to devise countermeasures.

Whether it's diversifying sources of income, cutting down on non-essential expenses, or hedging against market volatility, these forecasts empower businesses to navigate challenges proactively.

Monitor Business Health

By juxtaposing actual financial outcomes with forecasts, businesses can gauge their performance. Discrepancies can lead to course corrections, ensuring that the business remains aligned with its broader financial and operational objectives.

Methods and Tools for Creating a Financial Forecast in a Business Plan

Quantitative methods.

Numbers often tell a compelling story. Time series analysis, econometric models, and other statistical tools provide a quantitative means to chart out a business's future. These rely heavily on historical data and established market trends to make informed predictions.

Qualitative Methods

Sometimes, numbers need a human touch. Techniques like the Delphi method or expert judgment pool insights from professionals to make predictions, especially when historical data might not be a reliable indicator.

While these methods might lack the objective precision of quantitative models, they provide valuable subjective insights, especially in rapidly evolving industries.

Modern Forecasting Tools

The digital age has democratized forecasting. Several software solutions, from simplistic spreadsheet templates to sophisticated AI-driven models, empower businesses to automate their financial forecasting processes.

Integration capabilities, real-time data processing, and advanced analytics further enhance their efficacy.

Challenges of Financial Forecast in a Business Plan

External economic factors.

While businesses can control their operations, external factors often remain unpredictable. Market volatilities, geopolitical events, or global crises can disrupt even the most meticulous forecasts, underscoring the importance of adaptability.

Internal Business Changes

Organizational restructuring, strategy pivots, or product launches can significantly alter a company's financial trajectory. Such internal changes necessitate regular revisions of the financial forecast to ensure it remains reflective of the business's evolving landscape.

Inherent Uncertainty

The future remains, by nature, uncertain. Even the most sophisticated forecasting models rely on assumptions and estimates.

Recognizing this inherent unpredictability, businesses should adopt a flexible approach, regularly revisiting their forecasts and adjusting them in light of new data or changing circumstances.

A financial forecast in a business plan is an indispensable tool that projects a company's future financial performance, derived from both historical data and future assumptions.

Essential components include sales and revenue predictions, expense projections, and comprehensive statements like the P&L and balance sheet forecasts.

The objective is not just to track figures but to guide strategy, secure funding, manage risks, and constantly monitor the company's financial health.

While modern tools and quantitative methods provide precision, qualitative insights capture the nuances of rapidly changing industries.

Challenges like external economic shifts, internal business alterations, and the inherent uncertainty of predicting the future underline the importance of flexibility and adaptability.

In essence, a robust financial forecast not only charts a course for a company's growth but also ensures it remains agile in the face of both expected and unforeseen challenges.

Financial Forecast in a Business Plan FAQs

Why is a financial forecast in a business plan crucial for startups.

A Financial Forecast in a Business Plan helps startups anticipate revenues and expenses, allowing them to strategize operations, secure funding, and ensure financial sustainability from the onset.

How often should a company update its Financial Forecast in a Business Plan?

While the frequency may vary depending on the industry and market dynamics, it's generally recommended to revisit and update the Financial Forecast in a Business Plan at least annually or when significant internal or external changes occur.

Can I create a Financial Forecast in a Business Plan without prior financial data?

Yes, startups and new businesses often rely on industry benchmarks, market research, and qualitative methods to create a Financial Forecast in a Business Plan, even without historical financial data.

How accurate is the Financial Forecast in a Business Plan?

While every effort is made to ensure accuracy, a Financial Forecast in a Business Plan is based on assumptions, projections, and available data. External factors and unforeseen changes can affect outcomes, making it essential to revisit and adjust forecasts regularly.

What tools can I use to automate the Financial Forecast in a Business Plan?

There are various software solutions, ranging from spreadsheet templates to sophisticated AI-driven platforms, designed to help businesses automate and enhance the accuracy of their Financial Forecast in a Business.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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Financial KPIs – Top 30 Financial KPIs that Every Financial Professional Needs to Know

Key takeaways

Financial management is the most important internal process for any business.

Efficient financial management requires the use of right key performance indicators to measure financial process performance.

Monitoring financial KPIs ensure that goals are met adequately, and lets finance teams take a granular approach to monitoring, forecasting, and resource allocation. 

Financial key performance indicators are select metrics that help managers and financial specialists analyze the business and measure progress towards strategic goals.

Finance KPIs provide insights into the underlying financial and operational strengths of the business. 

Financial KPIs are even more powerful when they are used to analyze trends over time and to measure progress against targets. 

Automating KPIs helps businesses direct more of their resources to analyzing KPIs instead of expending effort and money to create them. 

Choosing finance KPIs must be done based on the company’s goals, business model, and specific operating processes. 

What are Financial KPIs?

Financial KPIs are a high level measure of profits, revenue, expenses, or other financial outcomes that focus specifically on relationships derived from accounting data. Financial key performance indicators are select metrics that can be used by managers and financial specialists for analyzing the progress of the business towards strategic goals. Different types of KPIs are used by businesses to monitor their success and growth. Identifying the KPIs that are meaningful to your business is a must for accurate measurement of performance. This blog explores financial KPIs in detail and lists top 30 KPI finance metrics that finance professionals need to know.

Table of Contents

Finance kpis – why are they needed.

Financial key performance indicators or financial KPIs are a high level measure of the profits, revenue, expenses, or other financial outcomes that specifically focus on relationships pertaining to accounting data. Financial statement metrics are almost always associated with a specific financial value or ratio. KPIs are metrics that provide insights into the financial and operational strength of a business. Financial KPI can be based on any kind of data that is important for the company’s performance, such as sales per square foot of retail space, click-through rate for web ads or accounts closed per sales person. KPIs for the finance and accounting department highlight crucial relationships in data, such as, the ratio of profit to revenue or ratio of current assets to current liabilities. Even a single KPI for financial and accounting can provide a useful snapshot of the business’s health at a specific point in time.

Finance KPIs can be even more effective when used to analyze trends and patterns over time, to measure progress against targets or to compare the business with other similar companies. Why are financial metrics and KPIs important for your business? In simple terms, financial KPIs are like indicators and warning lights that enable business leaders to focus on the big picture. With the help of finance KPIs, leaders can steer the company through financial hurdles and identify pressing issues without getting stuck into details of what goes on under the hood.

The main role of KPIs is to help companies determine which areas they are doing well and identify areas they need to improve. The actual financial statement metrics vary from company to company, but when KPIs are automated it becomes easier to track them. Once a set of KPIs are chosen as per unique business requirements, calculating and updating them can be automated. Automation also integrates the company’s accounting and ERP systems. This ensures that KPIs reflect the current state of the business and are always calculated in a standardized manner.

Automating KPIs is important for businesses of all types and sizes. When KPIs are automated, businesses can direct their finance and accounting resources to analyzing KPIs instead of expending effort and money on creating them. Large enterprises can manage voluminous data in an efficient manner rather than using error-prone spreadsheets. Defining the most useful and meaningful KPIs for your business can be challenging. The finance KPIs that are chosen will depend on your company’s goals, business type, and operating model.

Some of the finance KPIs like accounts receivable turnover and quick ratio are universally applicable, while other financial KPIs are specific to the industry. Financial KPI examples in the manufacturing industry include the status of inventory, while services businesses include revenue per employee while evaluating efficiency.

Types of Financial KPIs

Financial KPIs are classified based on the type of information they measure. Financial KPIs are broadly classified into 5 broad categories based on the information they track –

Profitability KPIs 

These KPIs measure metrics related to the profitability of the business. Profitability KPIs measure how well a company is performing in generating sales while keeping expenses low. Gross profit margin is a type of profitability KPI that refers to the total revenue minus the cost of goods sold or delivered, divided by your total sales revenue. The higher the gross profit margin you manage to acquire, the more income you retain from each dollar of your sales. Another profitability KPI is the operating profit margin which shows the operating profit margin as a percentage of total revenue earned. 

Liquidity KPIs 

These KPIs divide current assets by the current liabilities. These types of KPIs measure how well a company will manage short-term debt obligations based on the short-term assets it has on hand. Current ratio and quick ratio are financial KPI examples for measuring liquidity. The current ratio is calculated by dividing your current assets by your current liabilities. It measures your ability to pay your obligations in the short term, often within 12 months. Quick ratio or acid test considers the short-term liquidity positions that you can convert into cash quickly. 

Efficiency KPIs 

These KPIs measure how quickly a company can perform a certain task. Inventory turnover measures how quickly a company can convert an item from inventory to sale. The accounts receivable turnover is another efficiency KPI that measures how quickly you can collect your payments owed and displays a company’s effectiveness in extending credits. 

Valuation KPIs 

These KPIs measure the earnings of the business. Earnings per share and price-to-earnings ratio are two valuation KPIs that are used by finance teams. 

Leverage KPIs 

These metrics measure the amount of profit you generate for shareholders. Return on equity and debt to equity are examples of leverage KPIs. The debt-to-equity ratio looks at the company’s borrowing and level of leverage. This KPI compares the company’s debt with the total value of shareholder’s equity. Another leverage KPI is the return on equity which measures how much profit your company generates for your shareholders. Return on equity is calculated by dividing your company’s net income by the stakeholder’s equity. 

Top 30 KPIs for Finance and Accounting Departments

Financial management is one of the most important internal processes in an organization. Meticulous financial management ensures stability, good record-keeping, and tax compliance. To manage your finances efficiently and achieve better results over time, you need to introduce the right key performance indicator for finance and accounting processes. Here is a list of the top 30 financial KPIs that every finance and accounting person must know. Measuring and constantly monitoring KPIs are best practices for running a successful business. 

1. Gross profit margin 

This is a critical measure of the profitability and efficiency of the company’s core business. The gross profit margin refers to your total revenue minus the cost of goods sold (COGS) or service delivered, divided by the total sales revenue. This KPI signifies the percentage of total sales revenue that you keep after accounting for all direct costs associated with producing your goods. The company’s production efficiency is reflected by gross profit margin. The higher the gross profit margin, the more income you retain from each dollar of your sales. 

Gross Profit Margin = (Net sales – COGS)/Net Sales * 100

2. Return on sales (ROS) or Operating Margin 

This metric evaluates how much operating profit the company generates from each dollar of sales revenue. Return on sales is calculated as operating income, or earnings before interest and taxes (EBIT), divided by net sales revenue. Operating income is the profit a company makes on sales revenue after deducting COGS and operating expenses. This KPI is commonly used as a measure of how efficiently the company turns revenue into profit. 

Return on Sales = (Earnings before interest and taxes/Net Sales)*100

3. Operating cash flow ratio (OCF) 

This liquidity KPI ratio measures the company’s ability to pay for short-term liabilities with cash generated from core operations. It is calculated by dividing operating cash flow by current liabilities. The cash generated by a company’s operating activities is measured by OCF, while current liabilities include accounts payable and other debts that are due within a year. Operating cash flow utilizes the information from a company’s statement of cash flows, rather than income statement or balance sheet. This way the impact of non-cash operating expenses is eliminated. 

Operating cash flow ratio = Operating cash flow/current liabilities

4. Net profit margin 

This finance KPI is a comprehensive measure of how much profit a company makes after accounting for all expenses. The net income divided by revenue gives the net profit margin. Net income is often regarded as the ultimate metric of profitability because it is the profit that remains after deducting all operating and non-operating costs, including taxes. Net profit margin is expressed as a percentage. 

Net profit margin = (Net Income/Revenue) * 100

5. Current ratio 

The current ratio is a measure of the short-term liquidity of the company. The ratio of the company’s current assets to its current liabilities is the current ratio. Current assets are those that can be converted into cash within a year, which includes accounts receivable, cash, and inventory. Current liabilities include all liabilities that are due within a year, which includes accounts payable. When the current ratio is below one, it is a warning sign that the company does not have sufficient convertible assets to meet its short-term liabilities. 

Current ratio = current assets /current liabilities

6. Quick ratio 

This KPI is a measure of liquidity risk that measures the ability of a company to meet its short-term obligations by converting quick assets into cash. Quick assets are current assets that can be converted into cash without discounting or writing down the value. The quick ratio KPI is also referred to as the acid test because it measures the financial strength of a business. Companies aim for a quick ratio that is greater than 1. 

Quick ratio = quick assets/current liabilities

7. Working capital 

This is a liquidity KPI that is often used in conjunction with other liquidity metrics, such as the current ratio. Working capital compares the company’s assets with its current liabilities. The result is expressed in dollars instead of as a ratio. A low working capital may indicate that the company finds it challenging to meet its financial obligations. However, a very high working capital may be a sign that the assets are not being utilized optimally. 

Working capital = current assets-current liabilities

8. Gross burn rate 

This KPI is usually used by loss-generating startups to express the rate at which the company uses its available cash to cover operating expenses. The higher the burn rate, the faster the company will run out of cash unless it can attract more funding. Investors often monitor the gross burn rate when considering whether to provide funding. 

Gross burn rate = company cash /monthly operating expenses

9. Current accounts receivable (AR) ratio

This financial KPI reflects the extent to which the company’s customers pay invoices on time. The current accounts receivable ratio is calculated as the total value of sales that are unpaid but still within the company’s billing terms in relation to the total balance of all accounts receivable. A higher ratio is generally because it reflects fewer past-due invoices. A low ratio indicates that the company is having difficulty collecting money from customers and can be an indicator of potential future cash flow problems. 

Current accounts receivable = (Total accounts receivable- Past due accounts receivable)/Total accounts receivable

10. Current accounts payable (AP) ratio 

This is a measure of whether the company pays its bills on time. The current accounts payable ratio is the total value of supplier payments that are not yet due divided by the total balance of all AP. A higher current accounts payable ratio indicates that the company is paying more of its bills on time. The company’s cash flow problems can be eased by spreading out payments to suppliers. 

Current accounts payable = (Total accounts payable- Past due accounts receivable)/Total accounts receivable

11. Accounts payable (AP) turnover

This is a liquidity KPI that indicates how fast a company pays its suppliers. The accounts payable turnover looks at how many times a company pays off its average AP balance in a period, typically a year. It is a key indicator of how a company manages the cash flow. A higher ratio indicates that a company pays its bills faster. 

Accounts payable turnover = Net credit purchases/Average accounts payable balance for a period

12. Days payable outstanding (DPO)

This is another way of calculating the speed at which a company pays for purchases obtained on vendor credit terms. This metric converts AP turnover into a number of days. A lower DPO value indicates that the company is paying at a faster rate. 

Days payable outstanding = (Accounts payable *365)/COGS

13. Average invoice processing cost 

The average invoice processing cost is an efficiency metric that estimates the average cost of paying each bill owed to its suppliers. Processing costs often include labor, bank charges, systems, overhead, and mailing costs. The overall processing cost is influenced by factors like outsourcing and level of AP automation. A lower average invoice processing cost indicates a more efficient AP process. 

Average invoice processing cost = Total accounts payable processing costs/Number of invoices processed for a period

14. Accounts Receivable (AR) Turnover 

This KPI is a measure of how effectively the company collects money from customers on time. The accounts receivable turnover reflects the number of times the average AR balance is converted into cash during a specific period. This ratio is calculated by dividing net sales by the average AR balance during the period. 

Accounts receivable turnover = Sales on account/Average accounts receivable balance for period

15. Inventory turnover 

This operational KPI shows the number of times the average balance of inventory was sold during a period. A low inventory turnover ratio can indicate that the company is buying too much inventory or that sales are weak, while a higher ratio indicates less inventory or stronger sales. An extremely high ratio indicates that the company does not have enough inventory to meet the demand, limiting sales. 

Inventory turnover = COGS/Average inventory balance for period

16. Days Sales Outstanding (DSO) 

This metric is used by companies to measure how quickly its customers pay their bills. Days sales outstanding is the average number of days required to collect accounts receivable payments. DSO converts the accounts receivable turnover metric into an average time in days. A lower value of DSO means that customers are paying faster. 

Days sales outstanding = 365 days/Accounts receivable turnover

17. Days inventory outstanding (DIO) 

This is an inventory management KPI that provides a way to determine how quickly the company sells its inventory. It is a measure of the average number of days required to sell the item in the inventory. DIO converts the inventory turnover metric into a number of days.

Days inventory outstanding = 365 days / Inventory turnover

18. Budget variance 

This KPI compares the company’s actual performance to budgets or forecasts. Budget variance helps analyze any financial metric like revenue, profitability, or expenses. The variance is usually stated in dollars or as a percentage of the budgeted amount. Budget variances can either be favorable or unfavorable; where unfavorable variances are shown in parentheses. A positive variance value is considered favorable for revenue and income accounts, while unfavorable for expenses. 

Budget variance = (Actual result – budgeted amount)/Budgeted amount *100

19. Cash conversion cycle 

This finance metric calculates the time it takes for a company to convert a dollar invested in inventory into cash received from customers. The cash conversion cycle accounts for both the time it takes to sell inventory and the time it takes to collect payment from customers. This KPI is expressed as a number of days. 

Operating cycle = Days inventory outstanding + Days Sales outstanding

20. Leverage KPI 

Also known as financial leverage or equity multiplier. This KPI refers to the use of debt to buy assets. If all the assets are financed by equity, the multiplying factor is taken as 1. As debt increases, the multiplying factor increases from 1, which demonstrates the leverage impact of the debt, which ultimately increases the risk for the business. 

Leverage = Total Assets/Total Equity

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This is one of the most critical revenue KPIs for many companies, which shows the change in net sales from one period to another. The sales growth rate is expressed as a percentage; a positive value indicates sales growth while a negative value indicates the contracting of mean sales. Companies often compare sales to the corresponding period during the previous year or changes in consecutive financial quarters. 

Sales growth rate = (Current net sales – Prior Period net sales)/Prior period net sales*100

22. Fixed asset turnover ratio 

This KPI shows a company’s ability to generate sales from its investment in fixed assets. The fixed asset turnover ratio is relevant to companies that make significant investments in property, plant, and equipment in order to increase output and sales. A higher ratio is indicative of the effective usage of fixed assets, while a lower ratio means that assets are underutilized. The average fixed asset balance is calculated by dividing total sales by net accumulated depreciation. 

Fixed asset turnover = Total sales / Average fixed assets

23. Selling, general and administrative (SG&A) Ratio 

This efficiency metric indicates what percentage of sales revenue is used to cover SG&A expenses. These expenses can include a broad range of operational costs, including rent, advertising, and marketing. A lower SG&A is preferred. 

SGA = (Selling+General+Administrative expense)/Net Sales Revenue

24. Return on assets 

This efficiency KPI shows how well an operations management team makes use of its assets to generate profits. This KPI takes into account all assets, including current assets such as accounts receivable and inventory. This includes fixed assets, such as equipment and real estate. Return on assets excludes interest expense, as financing decisions are typically not within operating managers’ control. 

Return on Assets = Net Income/Total assets for period

25. Interest Coverage 

A long-term solvency KPI, interest coverage quantifies a company’s ability to meet contractual interest payments on debt such as loans or bonds. This KPI measures the ratio of operating profit to interest expense. A higher ratio suggests that the company will be able to service debt more easily. 

Interest Coverage = EBIT /Interest expense

26. Earnings per share (EPS) 

This profitability metric measures the net income that is generated by a public company per share of its stock. This is typically measured by the quarter and by the year. Earnings per share (EPS) metric is used by analysts, investors, and potential acquirers, to measure the company’s profitability and also to calculate its total value. The weighted average in the formula is basically the average number of shares outstanding or available during a given period. The total number of shares can change due to stock splits, stock repurchase, etc. When EPS is based on the total share outstanding at the end of the reporting period, companies could manipulate results by repurchasing stock at the end of a quarter. 

Earnings per share = Net income/ Weighted average number of shares outstanding

27. Debt to equity ratio 

This ratio looks at the company’s borrowing and level of leverage. It compares the company’s debt with the total value of shareholder’s equity. The calculation includes both short and long term debt. A high debt to equity ratio indicates that the company is highly leveraged. This may not be a problem if the company can use the money it borrowed to generate a healthy profit and cash flow. 

Debt-to-equity Ratio = Total liabilities/Total shareholder’s equity

28. Total Asset Turnover 

The total asset turnover is an efficiency ratio that measures how efficiently a company uses its assets to generate revenue. The higher the turnover ratio, the better the performance of the company. 

Total asset turnover = Revenue/(Beginning total assets + Ending total assets/2)

29. Return on Equity (ROE) 

Return on equity is a profitability ratio measured by dividing net profit by shareholder’s equity. It indicates how well the business utilizes equity investments to earn profit for investors. 

Return on equity = Net profit / (Beginning Equity+ Ending Equity)/2

30. Seasonality 

Seasonality is a measure of how the period of the year is affecting your company’s financial numbers and outcomes. This holds good in industries that are affected by high and low seasons, where seasonality KPI helps sort out confounding variables and see the numbers for what they truly are. 

It is important to note that there is no absolute good or bad when it comes to financial KPIs. Financial metrics or KPIs are to be used to measure the performance of the company and can be compared to prior years or competitors in the industry to see whether the company’s financial performance is improving or declining, and how it is performing relative to others. Setting and tracking the right financial KPIs can make all the difference for your business in a competitive industry. With all the essential KPIs listed above, businesses can make informed decisions, eliminate maverick spend, and carry out safe and scalable financial forecasting. 

Automating Financial KPIs

Automating financial KPIs is important for companies of all sizes. It means that small businesses can direct more of their resources to analyzing KPIs instead of expending effort and money to create them. Larger enterprises can manage voluminous data in a better way than by using error-prone spreadsheets or other manual methods. 

Apart from the common financial KPIs listed above, businesses may want to track specialized KPIs that delve into their inner operations related to analyzing inventory, sales, receivables, payables, and human resources. Manual mapping and calculating these KPIs from general ledger accounts can be cumbersome, time-consuming, and error-prone. This is the main reason businesses go for finance KPI automation. Automating the calculations and creating dashboards will centralize all these important KPIs. 

Cflow is a no-code workflow automation solution that can automate finance KPI calculation and the creation of dashboards. The built-in real-time dashboards and KPIs that are tailored to different roles and functions within the organization. Users can easily add customized KPIs to support specific requirements or goals. The automated finance workflows in Cflow can automate KPI calculations and provide real-time updates via centralized dashboards. All information is automatically updated as the platform processes transactions and other financial data. 

Financial KPIs and metrics help business leaders and managers to quickly get a pulse of how their company is performing and track important changes over time. The leadership can use finance KPIs to develop key objectives and keep their employees focused on measurable goals. An automated solution like Cflow provides automated, accurate, real-time KPIs that keep the company moving towards those goals and objectives, instead of getting lost in layers of data and reports. 

Here is why Cflow is the right choice for automating your finance KPIs-

AI-based workflow automation – The no code AI-based automation can ensure the safety of finance data.

Customizable templates – With the customizable templates in Cflow, users can create workflows quickly and effectively. 

Security and encryption – The data encryption feature in Cflow ensures safety and security of critical finance data.

Rules engine – The sophisticated rules engine in Cflow allows users to automate the formulas for calculating finance KPIs.

Financial KPIs can mirror the financial performance of the company. Managing and tracking finance KPIs through a manual system can be cumbersome and time consuming. When the calculation and tracking of financial KPIs is automated, it gives the finance team to analyze and strategize. Embrace simple and effective workflow automation with Cflow. Stay on top of your finance KPIs with Cflow. Sign up for the free trial right away.

Financial KPI FAQs

What are financial kpis .

Finance KPIs or financial KPIs are metrics that are directly tied to financial values that a company uses to monitor and analyze key aspects of its business. 

What are the 5 types of financial KPIs?

Profitability, leverage, valuation, liquidity, and efficiency are the 5 types of finance KPIs.

What are examples of KPIs?

Gross profit margin, operating profit margin, net profit margin, quick ratio, current ratio, are some examples of finance KPIs. 

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Voya Financial to acquire Indianapolis-based OneAmerica Financial’s retirement plan business

Indianapolis-based OneAmerica Financial will be acquired by New York City-based Voya Financial. Photo courtesy of OneAmerica Financial.

News Release

INDIANAPOLIS — Voya Financial, Inc. and OneAmerica Financial, Inc., a diversified mutual insurance organization, announced that the companies have entered into a definitive agreement for Voya to acquire OneAmerica Financial’s full-service retirement plan business.

In a press release, Voya Financial stated the acquisition adds strategically attractive scale to Voya’s full-service retirement business within Wealth Solutions, providing Voya with a broader set of capabilities that complement its existing product suite, including competitive employee stock ownership plan administration, and new opportunities to expand Voya’s distribution footprint and deepen its existing advisor relationships.

OneAmerica Financial’s full-service retirement plan business comprises 401(k), 403(b), 457, non-qualified deferred compensation plans and employee stock ownership plans. The transaction adds approximately $47 billion of assets to Voya’s strategically important full-service Emerging and Mid-Market segments and extends the firm’s leadership position in the Large Market by adding approximately $15 billion of recordkeeping assets.   As a result of the acquisition, Voya’s Wealth Solutions Defined Contribution client assets will grow to $580 billion, with total retirement plan and participant count reaching 60,000 and 7.9 million, respectively.

“This announcement is an exciting opportunity to add scale and new capabilities to our Wealth Solutions business that will help advance our growth strategy by offering workplace benefits and savings solutions to more individuals,” said Heather Lavallee, CEO, Voya Financial. “Voya is a purpose-driven company focused on supporting improved financial outcomes for our customers. OneAmerica is equally passionate about enabling financial security for their customers, making them a strong fit for Voya.”

“OneAmerica Financial is placing its retirement business in the hands of an organization that can deliver industry-leading offerings,” said Scott Davison, chairman, president and CEO of OneAmerica Financial, Inc. “For 60 years, we have been committed to serving the retirement market by helping our customers face every day with greater certainty. Voya is the firm to deliver on that commitment. We see this as a great opportunity for our customers and the OneAmerica Financial associates that will continue to grow with Voya, while we will focus on our remaining core product lines where we see tremendous growth potential.”

With the ability to serve employers and plans of all segments and sizes, including startup, Emerging and Mid, Large and Mega market plans, the acquisition of OneAmerica Financial’s full-service retirement plan business reflects Voya’s commitment to growing its Workplace Solutions businesses, supporting more participants with their workplace benefits and savings needs.

“This acquisition fully aligns with Voya’s relentless focus on customer satisfaction, leveraging the strength and expertise of two dedicated organizations who deliver a variety of workplace benefits and savings solutions,” said Rob Grubka, CEO, Workplace Solutions, Voya Financial. “OneAmerica’s broad range of retirement capabilities, combined with our existing product suite and digital solutions, provides an opportunity to extend Voya’s reach across all market segments to deliver health, wealth and investment solutions through the workplace and institutions.”

The transaction expands the services Voya provides to workplace benefits and savings plans it serves across all markets, tax codes and employer sizes. This includes OneAmerica Financial’s competitive employee stock ownership program and the benefits of its broad reach across the advisor community, bringing new and increased intermediary relationships to help expand Voya’s footprint.

“OneAmerica is centered around the people we serve, and we are deeply passionate about what we do,” said Sandy McCarthy, president of Retirement Services at OneAmerica Financial. “Our goal has always been to take our business to the next level to continuously improve our clients’ experiences to better optimize their outcomes. Voya shares this vision, and we are excited to see how our customers and associates will benefit in this new chapter.”

The transaction is expected to close on Jan. 1, 2025, subject to customary closing conditions, including regulatory approvals. Additional information on the transaction and its financial impact has been made available in a supplemental investor presentation on Voya’s investor relations website at  investors.voya.com . Voya intends to provide more details on the transaction during its third-quarter 2024 earnings call.

Citi is serving as financial advisor and Eversheds Sutherland LLP is serving as legal counsel to Voya in connection with this transaction.

Goldman Sachs & Co. LLC is serving as financial advisor and Sidley Austin, LLP is serving as legal counsel to OneAmerica Financial Partners in connection with this transaction.

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Voya Financial Set To Acquire OneAmerica's Retirement Business

Voya Financial is set to acquire OneAmerica Financial’s $60 billion retirement plan business, a move that both companies made public today. The transaction is notable within an industry that has seen consolidation for years, with major players like Empower and Principal Financial making strategic acquisitions to enhance their market presence and scale. These firms have capitalized on opportunities to expand into segments where they previously had limited influence. For Voya, the acquisition of OneAmerica’s retirement business will significantly bolster its full-service wealth solutions assets under administration, increasing by over 11% and bringing the total to approximately $580 billion. This deal will also expand Voya’s retirement plan portfolio to 60,000 plans, encompassing 7.9 million participants. “OneAmerica’s extensive retirement capabilities, combined with Voya’s current product suite and digital solutions, provide us with a unique opportunity to broaden our reach across all market segments,” said Rob Grubka, CEO of Voya’s Workplace Solutions. “This deal allows us to deliver a more comprehensive range of health, wealth, and investment solutions across various workplace and institutional settings.” The sale is expected to finalize by January 1, 2025. “For over six decades, OneAmerica has remained committed to serving the retirement market, ensuring our customers can face the future with confidence,” said Scott Davison, CEO of OneAmerica. “Voya is the right partner to carry forward that commitment. This transaction presents a tremendous opportunity for both our customers and the OneAmerica employees who will transition to Voya. Meanwhile, we will concentrate on our core product lines, where we foresee considerable growth potential.” Achieving scale in the defined-contribution plan business, which often operates with thin margins, is crucial for companies. Particularly for firms that struggle to retain a high percentage of assets through rollovers or have limited relationships with 401(k) participants across other business areas. The sale of OneAmerica’s retirement business was anticipated by many in the industry. “It was always going to happen,” said Fred Barstein, founder of The Retirement Advisor University. However, the fact that Voya is the buyer is somewhat unexpected. “Voya hasn’t been a major player in acquiring other plan businesses in recent years,” Barstein said. “They’ve been on the sidelines for a while when it comes to acquisitions in the 401(k) record-keeping space.” In recent years, the pace of deal-making among plan providers has slowed as the industry matures. Companies have shifted their focus to larger, strategic acquisitions that substantially increase their scale. Barstein pointed to examples like Empower’s purchases of Prudential and MassMutual’s businesses, Principal’s acquisition of Wells Fargo’s retirement division, and The Standard’s 2022 purchase of Securian Financial’s record-keeping business. More recently, Ascensus announced its acquisition of Mutual of Omaha’s $3.9 billion 401(k) record-keeping business in March. Voya, meanwhile, has been growing its multiple-employer plan business. Last month, the company’s assets in that segment—encompassing multiple employer plans, pooled employer plans, employer aggregation programs, and related services—surpassed $100 billion, marking a 15% year-over-year increase. While the acquisition of OneAmerica’s retirement business is a positive addition to Voya’s portfolio, Barstein noted that it doesn’t necessarily fill any specific gaps in the company’s market presence. “As record keepers grow larger, the cost savings from adding more plans and participants diminish, even with substantial acquisitions,” Barstein said. Currently, around 40 national defined-contribution record keepers remain in the market, and Barstein expects further consolidation to continue, albeit at a slower pace. “Once you’ve achieved scale, the focus shifts to profitability. More acquisitions will happen, but it’s about making the numbers work at this stage.”

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Prudential to fulfill $6 billion in protected retirement obligations in second pension risk transfer with ibm.

Prudential has been selected for a second pension risk transfer with International Business Machines Corporation (IBM).

Under the terms of the transaction, the IBM Personal Pension Plan (the “Plan”) has purchased a single premium group annuity contract that transfers to The Prudential Insurance Company of America, a subsidiary of Prudential Financial, Inc. (NYSE: PRU) approximately $6 billion of the Plan’s defined benefit pension obligations.

Prudential will assume responsibility for making retirement benefit payments to the transaction’s population of approximately 32,000 retirees and their beneficiaries beginning Jan. 1, 2025.

This marks the second pension risk transfer agreement between Prudential and IBM. In 2022, Prudential was selected as one of two insurers for a $16 billion total pension risk transfer, making it the second-largest pension buy-out ever in the U.S. market. The 2022 deal covered approximately 100,000 IBM retirees and beneficiaries, with Prudential acting as the lead administrator.

“Prudential is proud to again be entrusted to help protect the life’s work of IBM retirees,” said Julia Senchak, head of U.S. Pension Risk Transfer at Prudential Retirement Strategies. “Our deep commitment and expertise in flawlessly transitioning and administering benefit promises will provide participants with exceptional service and retirement security.”

Since 1928, Prudential has been an innovator and leader in the pension risk transfer market, collaborating with clients to deliver solutions that help meet each organization’s unique de-risking needs and financial objectives. Prudential revolutionized the modern pension risk transfer market with its pioneering pension buy-outs with General Motors and Verizon in 2012. Many similar transactions followed, including most recently, PSEG, Shell USA, a second transaction with Verizon, and an industry-first, union-based multiemployer plan transaction with Sound Retirement Trust.

ABOUT PRUDENTIAL

Prudential Financial, Inc., a global financial services leader and premier active global investment manager with approximately $1.5 trillion in assets under management as of June 30, 2024, has operations in the United States, Asia, Europe, and Latin America. Prudential’s diverse and talented employees help make lives better and create financial opportunity for more people by expanding access to investing, insurance, and retirement security. Prudential’s iconic Rock symbol has stood for strength, stability, expertise, and innovation for nearly 150 years.

The Retirement Strategies team at Prudential delivers industry-leading solutions to help protect the life’s work of more than 2.5 million individual and institutional customers and the people who rely upon them. 1 The business expands access to retirement security through its Individual Retirement protected growth and lifetime income strategies and its Institutional Retirement lines of business spanning U.S. Pension Risk Transfer, International Reinsurance, Stable Value, and Structured Settlements.

© 2024 Prudential Financial, Inc. and its related entities. Prudential, Prudential Retirement Strategies, the Prudential logo, the Rock symbol, and Rock Solid are service marks of PFI and its related entities, registered in many jurisdictions worldwide.

Insurance products are issued by The Prudential Insurance Company of America (PICA), Newark, New Jersey. PICA is a Prudential Financial company. PICA is solely responsible for its financial condition and contractual obligations.

1 As of June 30, 2024.

MEDIA CONTACT – PRUDENTIAL

Claire Currie 973-802-4040 [email protected]

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Euro area job vacancy rate at 2.6%.

In the second quarter of 2024, the job vacancy rate was 2.6% in the euro area , down from 2.9% in the first quarter of 2024 and down from 3.1% in the second quarter of 2023, according to figures published by Eurostat, the statistical office of the European Union . The job vacancy rate in the EU was 2.4% in the second quarter of 2024, down from 2.6% in the first quarter of 2024 and down from 2.9% in the second quarter of 2023.

In the euro area , the job vacancy rate in the second quarter of 2024 was

2.3% in industry and construction, and

2.9% in services.

In the EU , the rate was

2.2% in industry and construction, and

2.7% in services.

Job vacancy rate by Member States

Among the Member States for which comparable data are available (see country notes), the highest job vacancy rates in the second quarter of 2024 were recorded in Belgium , the Netherlands (4.4% in both of them) and Austria (4.0%). By contrast, the lowest rates were observed in Romania (0.7%), Bulgaria (0.8%), Poland and Spain (0.9% in both of them).

Breakdown by economic activity

The figure below presents the job vacancy rates of the EU and the euro area by economic activity, in the second quarter of 2024. Data are displayed for the business economy, for which data are available from all EU countries. The highest job vacancy rates, for both the EU and the euro area, were recorded in:

Section N: "Administrative and support service activities" that includes temporary employment agencies (3.9% in the euro area , 3.8% in the EU ),

Section F: "Construction" (3.5% in the euro area , 3.2% in the EU ),

Section I: "Accommodation and food service activities" (3.3% in the euro area , 3.2% in the EU ),

Section J: "Information and communication" (3.2% in the euro area , 3.0% in the EU ), and

Section M: "Professional, scientific and technical activities" (3.0% in the euro area , 2.8% in the EU ).

Notes for users

Revisions and timetable.

Compared with the rates published in the News Release of 14 June 2024, the job vacancy rate for the first quarter of 2024 remained the same, both for the euro area and for the EU.

Country notes

Denmark, France and Italy: data are not strictly comparable. In Denmark, only units within the business economy (NACE Rev 2 sections B to N) are surveyed. In France and Italy, public institutions are not covered within public administration, education and human health (NACE Rev. 2 sections O, P and Q).

Methods and definitions

The job vacancy rate (JVR) measures the proportion of total posts that are vacant, expressed as a percentage:

JVR = (number of job vacancies) / (number of occupied posts + number of job vacancies).

A job vacancy is defined as a paid post (newly created, unoccupied or about to become vacant) for which the employer is taking active steps to find a suitable candidate from outside the enterprise concerned and is prepared to take more steps and which the employer intends to fill either immediately or in the near future. Under this definition, a job vacancy should be open to candidates from outside an enterprise. However, this does not exclude the possibility of the employer recruiting an internal candidate for the post. A vacant post that is open only to internal candidates should not be treated as a job vacancy. An occupied post is a paid post within an organisation to which an employee has been assigned.

Job vacancy rates cover NACE Rev. 2 sections B to S. This aggregate is referred to as “ Whole economy ” for the sake of simplification, even if sections A: ‘Agriculture, forestry and fishing’, T: ‘Activities of households as employers; undifferentiated goods and services producing activities of households for own use’ and U: ‘Activities of extraterritorial organisations and bodies’ are excluded. Sections B to S include the industry (B to E), construction (F) and services (G to N) sectors together with (mainly) non-market services (O to S).

The job vacancy rates for the EU and euro area aggregates are based on Member States data, including estimates for recent periods when values are not yet available. If national data are only available for a sub-population, for example excluding smaller units or some activities, this sub-population is used in the computation of the job vacancy rate for the aggregates.

Geographical information

Euro area (EA20): Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland.

European Union (EU27): Belgium, Bulgaria, Czechia, Denmark, Germany, Estonia, Ireland, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Hungary, Malta, the Netherlands, Austria, Poland, Portugal, Romania, Slovenia, Slovakia, Finland and Sweden.

For more information

Website section on job vacancy statistics

Database section on job vacancy statistics (detailed datasets)

Statistics Explained article on job vacancy statistics

Euro indicators dashboard

Release calendar for Euro indicators

European Statistics Code of Practice

Get in touch

Media requests

Eurostat Media Support

Phone: (+352) 4301 33 408

E-mail: [email protected]

Further information on data

Ksenia CANO

Phone: (+352) 4301-37 395

E-mail: [email protected]

Agnieszka LITWINSKA

Phone: (+352) 4301-31 861

E-mail: [email protected]

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