The long term sustainability of the companies operating model depends on the tracking progress in essential areas of a company’s performance. The KPI of your company helps you to identify the overall performance of the business including the financial health of the organization. You can get an insight regarding the underperformance area and the area needs attention in order to prevent potentially serious losses. Thus it would be helpful for the business owner to measure the effectiveness of the process and put efforts to overcome the business issues. Thus the business objective can be achieved by developing the business values as an investment.
Every business owner should have an understanding of the financial realities of the business and the impact of various financial transactions over the business. Your business KPI numbers can help you with gathering that information. Then the entrepreneur is supposed to make use of the insights from the financial management performance indicators in the field of growth and success of the organization. All business informed decisions regarding the downsizing of the business, framing policies, implementing innovative procedures, correcting problems with policies including the idea of business extension can be taken based on the acquired information.
Every business should track the following key Financial Performance Indicators.
There are certain primary KPIs like expense, revenue, gross profit, and net profit which are used regularly in the business to analyze and estimate and to act upon as per the requirement of the situation. A few of the same are discussed below.
1.Operating Cash Flow
This is nothing but a comparison of the amount of operating cash to the capital invested in the business. This gives a clear picture of the financial health of the business while making a capital investment decision. You may gain a pretty good profit but you cannot pay for deliveries and routine operating expenses if you do not have a good operating cash flow ration. Operating Cash Flow Management services shows the capacity of the business generating sufficient cash to pay off all day to day organizational expenses for the smooth running of the business.
2.Working Capital
The immediate cash kept in the business for routine activity is called working capital. It is the available operating funds of the business. The difference between the short term liabilities and the short term assets is the business Working Capital. These short term liabilities include accounts payable, all accrued expenses, and loans while accounts receivable, cash on hand and short-term investments come under short term assets.
This is an important financial indicator showing to what extent your short term assets are capable enough to meet your short-term financial liabilities.
3.Current Ratio
This financial indicator demonstrates the solvency of your business. Current Ratio KPI can be attained by dividing total current assets by total current liability. Thus it says about whether the business is in a position to pay off its routine financial obligations on time without fail. This is quite significant for an organization to keep up a steady level of credit rating to maintain a good business reputation.
4.Debt to Equity Ratio
As the name suggests it is the contrast of the total liability of the business to the net worth or shareholders’ equity. This indicator shows how well you have utilized your business fund in order to get the best profit. This demonstrates the profitability of a concern. However, it tells the debt the business owes to reach the level of profitability. This is a good tool for potential investors to know the financial accountability services, and creditworthiness of the business.
5.LOB Revenue Vs. Target
This is a comparison of actual revenue earned in contrast to the estimated revenue for a task. The difference between the actual revenues and projected can be analyzed to identify the causes of discrepancies. This helps an organization to strengthen its flaws. It can be treated as a budgetary tool to prepare a more accurate budget for needs.
6.LOB Expenses Vs. Budget
Likewise, this is done with the intention to make a study of actual expenses to the budgeted amount. Here we find the discrepancies and identify the causes of the same for future benefit. The business takes future remedial actions based on this to build an excellent relationship between your business’s operations and finances.
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