Quantifiable KPIs (Key Performance Indicators) are a critical tool for any CFO who wants to maintain visibility and insight into financial performance. There are many KPI measurement methods out there, leading some executives to wonder how many KPIs should their business have.
While KPIs for CFOs and KPIs for finance managers might appear similar, there is some variance. For example, a small business KPI will look a bit different than the primary KPI measurement methods utilized by enterprises. However the business looks though, a financial KPI dashboard delivered through a finance software solution can be the best way to keep things organized.
These 20 financial KPIs should form the foundation of every CFO’s measurement efforts.
1. Operating Cash Flow
One of the most important business KPIs to track, OCF indicates the total amount of money produced by a business’s daily operations and whether the company can maintain a positive cash flow.
2. Working Capital
A measure of assets available to fulfill short-term obligations, including cash, accounts receivable, and short-term investments, usually indicating how quickly a business can generate quick cash:
Working Capital = Current Assets – Current Liabilities
3. Current Ratio
This KPI reflects your company’s ability to fulfill financial obligations in one business year, assessed by comparing assets against liabilities:
Current Ratio = Current Assets / Current Liabilities
Current ratio is a measure of short-term liquidity, with ratios below 1.0 indicating potential difficulty fulfilling debts.
4. Quick Ratio
Quick ratio is similar to current ratio as a measure of short-term liquidity, but it ignores inventories in its calculation and instead focuses on high liquidity assets in the calculation:
Quick Ratio = (Cash + Accounts Receivable + Short-Term Investments) / Current Liabilities
5. Net Profit Margin
This metric, usually expressed as a percentage, offers insight into business profitability by measuring how much of each earned dollar translates into actual profits.
Net Margin = Net Profit / Revenue
6. Gross Profit Margin
This metric goes one step beyond net profit margin to provide an assessment of how much revenue is gained from a transaction after accounting for the cost of good sold:
Gross Profit = Cost of Goods Sold / Revenue
7. Days Sales Outstanding
Days Sales Outstanding (DSO) measures the average number of days it takes your business to collect payments after a sale has been made:
DSO = Accounts Receivable/Total Credit Sales X Number of Days
High DSO rates indicate potential cash flow issues, as your company is either making transactions largely off credit or otherwise struggles to collect payments from debtors.
8. Burn Rate
This KPI measures how quickly a company spends money in a given time period, generally used to forecast whether ongoing operating costs are sustainable in the long-term.
9. Sales Growth
One of many financial KPIs that indicate total sales generated over a given time period, displaying growth or decreases when compared against historical values.
10. Current Accounts Receivable
Current A/R measures how much money your business is owed by its debtors, used as a way to estimate incoming revenue and how long it takes to get paid, on average.
11. Current Accounts Payable
Opposite to A/R, current A/P indicates how much money you owe to your creditors, suppliers, banks, and so on – usually split up in granular fashion across business departments or divisions.
12. Return on Equity
A broad measure of how much revenue a company generates from each unity of shareholder equity, used to indicate how much profit a business can generate from a shareholder’s investment.
13. Debt to Equity Ratio
An assessment of how well an organization manages shareholder investments, expressed as a ratio indicating whether a company is generating profits or building debts.
14. Inventory Turnover Ratio
This KPI measures how much inventory is sold and replaced in a given period, measured as a ratio and tracked as a general way to assess merchandise control:
Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
15. Return on Assets
ROA provides an overview of how much profit is gained from investments, offering a broad overview of how big of an impact returns have on overall profitability.
ROA = Net Income / Total Assets
16. Budget Variance
A measurement of the difference between actual and allocated figures for various accounting fields, often representing potential increases or decreases in earnings/losses against business projections. Some variance can be predicted and managed, while some represents uncontrollable external forces.
17. Expense Management
An in-depth assessment of how modifiable company expenses (such as those submitted by employees) are managed, whether errors exist, and general efficiency in financial performance assessment.
18. Finance Error Report
This KPI assesses which finance reports contain errors, mistakes, or otherwise require clarification. These processes can be time-consuming to perform manually, so regular reporting here can help your company build confidence in its financial processes.
19. Internal Audit Cycle Time
A KPI detailing how long it takes to perform a full internal audit, an essential tool for CFOs interested in maintaining visibility into processes.
20. Resource Utilization
A measure of how well a company performs when comparing billable time against non-billable time, often used by creative agencies with substantial amounts of internal project management work.
