Examples For Understanding Your Profitability
(Financial KPi Examples for Finance Departments)
These examples of Financial KPIs are for helping you to 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 to set growth targets over time.
The best KPIs for your organisation starts with defining your business objectives and then designing KPIs that measure them. This list is perfect for those who have already defined their business objectives and are looking for some inspiration around ways to measure these objectives. We’ve organised the KPI examples by department to help you find the KPIs you need. KPI examples for the following departments are included:
Gross Profit Margin
Expresses your profits as a percentage of total sales revenues generated. This gives you a high-level view of how much profit you’re making. Although, it doesn’t factor in all expenses so shouldn’t be used for detailed decision making. It is however useful for bench-marking your performance over time or comparing your profitability to another similar company.
Net Profit Margin
The percentage of revenue remaining after operating expenses, interest and taxes have been deducted from a company’s total revenue. This gives a more accurate internal figure for understanding profit but is less useful for comparisons outside of your company.
Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue is a popular metric for SaaS companies. This metric looks only at the revenue you generate each month which will re-occur with little to no additional investment. For example, any customer who signs up to a recurring monthly subscription to Sky TV increases their MRR.
ROE measures your net income against each unit of shareholder equity. Return on equity ratio not only provides a measure of your organisation’s profitability, but also its efficiency. Less useful for start-ups, but an important KPI for established organisations.
KPI Examples 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.
The Current Ratio KPI weights your assets. Assets such as accounts receivables, are weighted against your current liabilities, including accounts payable. This will help you understand the solvency of your business.
Shows you the rate at which you are collecting what is owed to you by customers. Calculate this by taking total earnings in one time period against your average accounts receivable in the same period. It’s best to monitor this over time so that you can use it as an early warning system. If your customers start taking longer and longer to pay you, this KPI will give you an indication of this. If this happens, it will impact your own liquidity soon enough.
Runway & Burn Rate
These two KPIs work conjointly to help you understand how much time you have for survival in the worst-case example of sales stopping completely. Simply calculate how much money you’re are spending each month; this will give you your burn rate. Then, divide the total amount of cash you have available by this figure, to give you your runway in months.
KPI Examples for Understanding your Efficiency
If you’re profitable and liquid, you’ve already passed some of the hardest tests in business. Now it’s time to start measuring your efficiency as a business. This will help you identify opportunities to improve, which in turn will improve your profitability and overall stability.
Revenue per FTE
Employee costs usually make up the bulk of a company’s expenses. So, it’s often useful to measure how much revenue you are actually generating for each employee in your company. This gives you an idea of whether you’re making an appropriate amount of revenue for the size of your business.
Revenue per Customer
This gives you an idea of how much gross revenue you make per customer Kpi’s. How you calculate this will vary depending on the type of business. For us as a SaaS business, we look at the Life Time Value of a customer (LTV) based on what they pay in their subscription and how long a subscription typically lasts. If you were coffee shop you might instead look at the average spend in a visit.
Revenue Growth Rate
This KPI helps to ensure your business continues to grow at a target rate, measured by a percentage. Ideally you would measure this monthly or on a 12-month rolling average basis.
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.
Asset Turnover Ratio
The asset turnover ratio measures a company’s ability to generate sales from its assets by comparing net sales with average total assets. For example, a ratio of .5 would mean that each dollar of assets generates 50 cents of sales.
Make an Enquiry
Our world-class strategy courses give you the tools and capabilities to create competitive advantage and deliver growth in your organisation. Attend our programmes and allow us to take on your strategic challenges and drive success for your organisation.
Whether you are an individual or an organisation/group looking for a programme, get in touch and we can help find the best solution for you.