The 4 Best Financial KPIs Every Company Should Be Measuring

The 4 Best Financial
KPIs Every Company Should
Be Measuring

© 2020 Bernard Marr, Bernard Marr & Co. All rights reserved
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Introduction
Introduction
The term KPI is popular in business today, but unfortunately, it's often
misunderstood. Find out which four financial KPIs (key performance indicators)
are most important for your business, and why.
The 4 Best Financial KPIs Every Company
Should Be Measuring

Tracking key performance indicators (KPIs) will tell you if your business is on
track for success, or veering off course and in need of correction.
But when it comes to your financial performance, what metrics should you
monitor? Here are the four financial metrics every company should keep a close
eye on.

1. Revenue/Sales
How much money are you generating? This is often called the "top line"
because it's at the top of your financial statements. With this KPI, I recommend
tracking monthly sales, as well as examining your revenue growth rates. It's
useful to break overall revenue down by product or by region, so you can clearly
see where you're generating money in the business.
Doing that, can also help you spot revenue concentration, where most of your
sales are generated from one product or one customer, which can leave your
business vulnerable.

2. Profitability
How much money is left at the end of the month, after your expenses? Is your
company profitable? Every business has costs, so you need to subtract those
expenses from your revenue to get your net profit. This is often called the
"bottom line” because it’s at the bottom of your financial statements. The key
metric here is net profit margin, which looks at your profits relative to your
revenue (the percentage of revenue that is left as profit). Net profit margins vary
widely by industry, but a good benchmark to aim for is approximately 10% - if
your company is below 5%, that's usually considered low, and above 20% is
comparatively high.

3. Liquidity
This KPI tracks how much money is available in your business. Liquidity is the
difference between your current assets and your liabilities. Assets include the
cash you have in the bank, the invoices you have already sent out, and your
stock. Liabilities include accounts payable. Liquidity is also known as "working
capital," and to have a healthy business, you're aiming for a ratio between 1.2
and 2.
When you’re examining your liquidity, it is also useful to assess your cash
conversion cycle. How long does it take you to get a return after you've made
an investment? If you put money into buying equipment, developing a new
product, or taking on a project, how long does it take before you can collect
money back? Over time, you want to reduce your cash conversion cycle as much
as possible and generate better liquidity.

4. Return On Investment (ROI)
We want to invest in things that generate the biggest possible return to your
business. For example, if you invest 1 euro in something and get 5 euros back,
that’s a good ROI. In marketing, an ROI of 5 to 1 is good – if you get to 10 to 1,
that’s an exceptional return on investment in the marketing realm.

Navigating Your Business With The Right Financial
Metrics
Regardless of your business model or industry, your company needs to monitor financial
metrics.
Remember: Using the right indicators will help you deliver the right results. You may add
additional financial KPIs, but these four metrics (revenue, profitability, liquidity, and ROI)
should act as the cornerstone of your financial strategy. And financial metrics alone won't
give you a comprehensive picture of your business, which means you will also need to find
KPIs for other key areas of your business, such as customers, operations, and employees.
Want to learn more about key performance indicators, and what you should be
monitoring in your business to make sure you’re on track to meet your goals? On my
website, you can find lots of articles on the most important KPIs across all business units,
as well as the KPI library to help you find the right measures for your company.

Bernard Marr is an internationally best-selling author, popular keynote speaker, futurist, and a
strategic business & technology advisor to governments and companies. He helps
organisations improve their business performance, use data more intelligently, and
understand the implications of new technologies such as artificial intelligence, big data,
blockchains, and the Internet of Things.
LinkedIn has ranked Bernard as one of the world’s top 5 business influencers. He is a frequent
contributor to the World Economic Forum and writes a regular column for Forbes. Every day
Bernard actively engages his 1.5 million social media followers and shares content that
reaches millions of readers.
Visit The
Website
© 2020 Bernard Marr , Bernard Marr & Co. All rights reserved
© 2017 Bernard Marr , Bernard Marr & Co. All rights reserved
Bernard Marr is an internationally best-selling author, popular keynote speaker, futurist, and a
strategic business & technology advisor to governments and companies. He helps
organisations improve their business performance, use data more intelligently, and
understand the implications of new technologies such as artificial intelligence, big data,
blockchains, and the Internet of Things.
LinkedIn has ranked Bernard as one of the world’s top 5 business influencers. He is a frequent
contributor to the World Economic Forum and writes a regular column for Forbes. Every day
Bernard actively engages his 1.5 million social media followers and shares content that
reaches millions of readers.
Visit The
Website

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The 4 Best Financial KPIs Every Company Should Be Measuring

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The 4 Best Financial KPIs Every Company Should Be Measuring