Driving financial strategies to improve profits, keep costs down, and generate a fluent cash flow is no easy task for any chief financial officer (CFO). Thankfully, there are modern financial management solutions that make their work easier. Sage Intacct and D365 Business Central, for example, have built-in dashboard metrics and key performance indicators (KPIs) that help CFOs facilitate their controllership, treasury, economic strategy, and forecasting duties. These 10 are the most essential measurements:
1. Working Capital
Assets that are immediately available are known as working capital, and can include cash, short-term investments, and accounts receivables. The working capital KPI shows the ability of your business to generate cash quickly. So, when you’re faced with big financial decisions, your CFO can evaluate the company’s financial health and decide if your available assets can meet short-term financial obligations.
2. Operating Cash Flow
Is your business producing enough cash to sustain investments or cover expenses? Operating cash flow, which is the amount of money produced by a company’s daily operations, answers that question. Comparing operating cash flow with total capital spent allows you to dig deeper into the financial status of your business so you know if it’s generating enough capital to keep the accounts positive.
3. Current Ratio
Your company’s ability to pay financial obligations on time and maintain a positive credit rating is determined by the current ratio KPI. It weighs your assets against liabilities to help you understand the solvency of your business. Investors typically use this KPI to know if a company has a healthy operating cycle.
4. Quick Ratio or Acid Test
Measure your organization’s ability to meet short-term financial obligations with the quick ratio KPI. Compared to current ratio, it provides a more conservative assessment of your financial health since it excludes inventories from your assets.
5. Payroll Headcount Ratio
With the payroll headcount ratio KPI, you will see how many employees deal with payroll processing compared to the total number of employees in an organization.
6. Return on Equity
Shareholders want to know if their investments are being put to good use. That’s why they keep track of the return on equity KPI, which is net income divided by shareholders' equity. This determines your business’s ability to generate revenue per unit of shareholder equity.
7. Debt to Equity Ratio
Take your company’s total liabilities against shareholder equity, and you have the debt to equity ratio KPI. It’s similar to the return on equity KPI, but instead of informing shareholders how profitable your business is, it tells them how much debt you’ve accumulated in trying to finance your assets.
8. Accounts Payable Turnover
The accounts payable turnover KPI reveals the rate at which your company pays off suppliers, effectively showing how much you spend on them at any given time. It is calculated by taking total costs of sale and costs incurred by the company when supplying goods or services against average accounts payable, all during a specific period.
9. Accounts Receivable Turnover
How fast sales revenue enters your bank account is determined by the accounts receivable turnover KPI. It alerts your CFO of any outstanding payments and helps the company maximize the efficiency of payment collections. Accounts receivable turnover KPI is calculated by taking your total sales-driven earnings against your average accounts receivable in a specific period.
10. Inventory Turnover
See how much of your average inventory items are sold off in a specific period with the inventory turnover KPI. It is calculated by dividing sales over average inventory, both within a specific period.
Empower your CFO by providing robust financial management solutions. Reach out to us today so we can talk about creating a dynamic and customized KPI dashboard for your business.