Financial KPIs for finance departments can be comprehensive, but they exist for a distinct purpose. It all starts with your company releasing its financial statements to the general public. Companies also track financial KPIs for internal auditing and process improvement.
For the sake of efficiency, it is a good idea to categorize financial performance indicators into three levels: The CFO of a company should be notified of high-level indicators. At the same time, the finance department should analyze more detailed indicators. If you are a finance department manager, you will want to read this post to learn about some financial reporting software tools that can help you do your job better.
To influence the future course of a company, finance managers and CFOs require access to specific financial KPIs for Finance Departments to assess the health of their company’s finances quickly. With a business budgeting software like Performance Canvas Financials, tracking your financial KPIs is a lot easier.
Below are some financial KPIs you can track with the right business budgeting software for 2022.
Quick Ratio. A company’s ability to meet its short-term financial obligations is measured using the quick ratio. To calculate a company’s quick ratio, divide current liabilities by current assets.
Current Ratio. This is a metric used to evaluate the health of a company is the current ratio. If a company can’t meet its obligations within one year, this ratio is used to see if it can meet its obligations immediately. The current ratio refers to the current assets divided by current liabilities. It measures how much money a company has at its disposal that can be put to use.
Working capital is a critical financial metric. Using this information, a company’s financial manager can determine how aggressively it should seek new business growth opportunities.
Current Assets: Current Liabilities is the definition of working capital.
Accounts Payable Turnover- One good practice is to keep an eye on your company’s accounts payable turnover rate. Financial KPIs measure your company’s financial health. For instance, it can help you understand how long it will take you to pay off suppliers. It’s a sign of possible cash flow issues if the ratio starts to fall.
Cash Conversion Cycle- Financial performance is measured by the amount of time it takes to convert goods back into cash, known as the “Cash Conversion Cycle” (CCC). This counts an organization’s accounts payable (AP) turnover. Analyzing how many days an organization needs to sell inventory, collect receivables, and pay its bills is accomplished.
Finance managers and CFOs care significantly about their shareholders’ return on equity (ROE). ROE is an essential financial metric for shareholders because it measures how effectively their equity is used. Companies within a given industry frequently use this metric to determine a better investment.
Return on Investment (ROI) is calculated by dividing net income by the average number of shares held by investors or equity owned by stockholders. As the name suggests, this financial key performance indicator calculates the ratio of a company’s total debt to its equity. A company’s debt-to-equity ratio is an essential metric for financial managers to keep an eye on. Having a high ratio can be worrisome, as a downturn could result in disaster.
To calculate the total debt to equity ratio, divide the total amount of debt by the total amount of equity.
Every CFO’s go-to metric is the gross profit margin. Once you’ve subtracted the cost of goods sold from your revenue, it measures the percentage of revenue left after removing the cost of goods sold. This is a good indicator of how successful your products are. Gross profit margincan be obtained by gettingthe difference between net sales and the cost of goods sold.
Financial metrics such as Net Profit Margin are often the bottom line. A company’s profit margin matters most to its CFO, financial manager and shareholders at any given time. When it comes to financial performance reporting, this metric must be positive at all times, and the higher the number, the better. Net Profit Margin can be obtained by dividing your net income by your net sales.
Earnings Per Share (EPS) – As soon as a company reports quarterly results, analysts and news outlets alike will be highlighting the company’s earnings per share (EPS). As a result, it is a critical financial metric that every CFO must keep track of.
Earnings Per Share (EPS) are calculated as follows: (End-of-Period Common Shares Outstanding)
CAGR (compound annual growth rate) – Shareholders are always interested in how quickly your company is expanding, whether in terms of revenue, profits or market share. This financial KPI measures how much a specific business area has grown overtime on a compound basis. This is a critical figure for a CFO to present to investors.
In finance, operating cash flow (OCF) is one of the most commonly used metrics. It is a way of determining how much money a business makes daily. This number should be in the positive range to determine how much CAPEX a firm can afford.
A financial performance indicator known as OPEX is used to measure how much it costs a company to operate on a day-to-day basis. This financial performance indicator is known as OPEX. A company’s overhead consists of everything from rent to inventory costs to insurance to payroll to R&D.
Track KPIs with Performance Canvas
Financial KPIs help CFOs make wise financial choices throughout the year. That’s why you need a business budgeting software that gives you all the tools and features you’ll need to help your business succeed this year.
Performance Canvas Financials is a complete budgeting and planning program that saves time budgeting and forecasting to prepare your organization for the future. PCF is also the ideal platform if you want to reduce your team’s budgeting and planning time by half while simplifying your finance team’s day-to-day.
Get in touch with Performance Canvas today to book a free demo.