Financial Performance Indicators to Measure | FinModelsLab

The success of your company or a growing SaaS startup or E-commerce startup depends on how much income you’ll get in return and how good you are at managing your business’s finances. When it comes to measuring sales growth, market share, and generally a company’s financial health, numbers play a huge role. That’s where the key financial performance indicators and ratios come into use. You can find a number of indicator examples that are more likely to have something relevant to your business’s activities.

If you start digging for business indicators to measure, you will find many sources of information, but not all of them are relevant. To fully understand your company’s performance indicators and what can help to grow the business and fiscal health, let’s figure out what the KPI actually means and what helpful indicators need measuring by a business founder.

What are the Key Financial Performance Indicators

Key performance indicator (KPI) is a collection of metrics, used to evaluate crucial factors in determining essential goals and in achieving targets. Moreover, KPI helps to improve strategy for projects, to compare a company’s finances against different organizations within its industry, and to measure performance in a variety of areas from marketing to finance. KPIs differ by industry and company, depending on the measuring criteria.

They are sometimes mentioned as KSIs — key success indicators. Here are the most basic and helpful financial metric classes you need to be measuring.

Gross Profit Margin

Every business owner should know their gross sales revenue. Subsequently, knowing your overall revenue will help you look more clearly at your pricing.

It helps you determine precisely how much money you have left and what keeps you from pricing your services properly. The gross margin should be sufficient to cover expenses and leave you with at least a minimum financial benefit.

There are different profit margins — apart from gross profit margin — that are used to measure a business’s profitability at various levels. These are the significant ones:

• Operating margin
• Pretax margin
• Net profit margin

Net Profit

Your net profit is the amount of money that a company has made after working expenses. They are not included in the calculation of gross profit. Briefly, net profit is what’s left after taxes.

If you are a sole business owner, it is very important that this amount is sufficient enough to cover costs, plus enough to accumulate extra savings and to build up your cash reserves that will help your business during slow periods.

Current Ratio

This is one of the most important things — the current ratio indicates the capability to pay short-term bills. Besides, it is a simple financial KPI measure, calculated as current assets divided by current liabilities. Comparing the ratios for companies within the same industry is a great method, as it helps to analyze whether the company’s cash flow is in accordance with the requirements of standards.

Non-Financial Key Financial Performance Indicator

Not all KPI metrics are cash-flow-related. In other words, non-financial performance indicators refer to an intangible value of a business. So, it includes knowledge, skills, corporate reputation, human capital, data, as well as patents, processes, or innovations. Some general non-financial performance indicators comprise measures of traffic. In general, present objectives manage the metrics that can vary as the company accomplishes old aims and assesses new ones.