Success depends on generating revenue and being responsible for your finances. Whether you’re an exciting new Start-up or an established Fortune 1000 organization, these Finance team KPI examples will help to prove the profitability and fiscal health of your business.
Key Performance Indicators (KPIs) for Finance teams are measurable values that easily indicate how your business is doing around revenue and profits. Long term business goals are achieved by measuring these KPIs.
Being on top of these figures is important – you will want to measure and track your Finance KPIs easily and be able to watch progress, as well as escalate some KPIs into OKRs. This can be achieved in OKR software such as ZOKRI.
Here is a list of Finance KPIs that modern Finance teams can start using right away.
EBIT can be used to analyze the performance of business core operations without the costs of the capital structure and tax expenses impacting profit.
EVA is a metric based on residual wealth. It is calculated by deducting an organization’s cost of capital from operating profit.
This is designed to compare a business’s gross profit to its operating expenses. The Berry Ratio is used as an indicator of profit in a given period.
The selling price per unit, minus the variable cost per unit. The formula is presented as C=P-V. It represents the incremental money generated for each product/unit sold after subtracting the variable portion of your organization’s costs.
This is used to determine how easily your company can pay interest on your outstanding debt. The calculation for this would be to divide the company’s earnings before interest and taxes (EBIT) by its interest expense during a given period.
This is a formula that helps you and your business to work out how long it takes to clear your accounts receivable. Simply put – it’s the number of days that an invoice will remain outstanding before it’s collected.
The formula looks like this: Accounts Receivable Days = (Accounts Receivable / Revenue) x 365
Profitability metric that shows the amount of money produced or lost by your organization during a given period. Typically you calculate this metric by working out the difference between cash inflows and outflows.
This metric measure your financial health by calculating the amount of money that you have left over from product sales after taking away the Cost Of Goods Sold, also known as COGS. This can also sometimes be known as the Gross Margin Ratio.
The formuala for Gross Profit Margin reads like this: GPR= Net Sales – COGS / Net Sales
It’s critical to your business to avoid transaction errors. To formulate the Transactions Error Rate you must add all transaction related errors in any given time and then divide that by the total number of transactions that are completed in that time period.
The above KPIs are important for any Finance team to measure and track whether you’re a Start-up or well established Fortune 100 company. Here are some more Finance KPIs that you may wish consider for your organization. Remember – if a KPI is vital for performance it could be escalated to become an OKR.
Measure and track the total amount of money generated by your organization’s daily business operations. The metric will hint whether your company can maintain positive cash flow that’s needed for growth – or that you’ll require external financing to pay for the expenses of daily operations.
This is your organization’s ability to pay all the financial obligations in one year. It takes into account the company’s current assets which include account receivables, and current liabilities, such as account payables.
The Current Ratio is liked by Investors. It’s used as an indicator of whether a company has a healthy operating cycle. A high Current Ratio might show that the company has a lot of assets and cash – but fails to invest in innovation and growth.
A healthy Current Ratio is between 1.5 and 3.
Track whether a you have sufficient short-term assets to cover near-future liabilities. The Quick Ratio will give you an accurate overview of a company’s financial health than the Current Ratio. The Quick Ratio ignores liquid assets such as inventories.
Track the rate at which your company is spending money on a weekly, monthly or annual basis. This is a basic Financial KPI – but can benefit small organizations that don’t undertake an extensive analysis on finances.
Compare this KPI against other Finance KPIs such as NPF (Net Profit Margin) and Revenue, you’ll see that Burn Rate indicates operating costs and tracks if they are sustainable in the long term.
The formula for NPF is written as: Net margin = net profit / revenue. It is used to show how efficient an organization is at generating profit compared to its revenue.
Immediately available cash is known as Working Capital. The Working Capital KPI measures your “currently available assets” to meet short-term obligations. Cash, short-term investments and accounts receivable are counted in the Working Capital KPI. The formula reads as: WC = Current Assets – Current Liabilities.
Measure the amount of money owed to a business by its debtors with this financial KPI. This metric will help you to estimate the upcoming income and calculate average debtor days. It will show how long it takes for a business partner or client to pay back their debt to you.
If you have a high CAR, it might indicate that your company isn’t capable of dealing with long-term debtors – and therfore losing money.
This is opposite to the metric above. This CAP metric will indicate the sum that a business owes to suppliers, creditors and banks. This KPI can be easily broken down into departments and divisions which gives you a detailed overview of what is the current payables.
These KPIs can and should also be used inside Key Results as part of setting goals using OKRs.
Remember that when setting your targets to be ambitious. Goals are deliberately designed to be hard to achieve,
as this is what drives greater creativity, efficiency and effectiveness.
The data can be gathered from integrations with Salesforce and other Sales and
Marketing technologies you’re using, or update KPIs manually.
Inside ZOKRI you can create Dashboards and create OKRs from KPIs. You can also create and manage Initiatives
targeting these KPIs and OKRs in ZOKRI or by connecting task managers like Trello and Asana.
Measuring KPIs that matters, setting goals and aligning and optimizing your operations is
the key to performance growth and is what ZOKRI is designed to do.