CFO’s duties in today’s volatile market conditions are critical. Innovative financial management solutions enable CFO’s to make strategic financial decisions smarter by analyzing the real-time KPI’s via built-in dashboards. The CFO’s key responsibilities as such budgeting & forecasting, economic strategy, treasury & controllership together form a strong corporate financial strategy. Monitoring key performance indicators in real-time facilitates
CFO’s to predict risks like economic downturns, pandemics, and forecast capital budgeting required to meet the organizational goals for every financial year.
Our financial experts of
Park Intelli Solutions collectively share the 32 financial KPI’s every CFO must keep track of accurate predictions and strategic corporate budgeting.
Every CFO Must Measure The 33 Crucial Financial KPI’s to Empower Corporate Strategic Decisions
Operating Cash Flow
Operating cash flow is the revenue generated by any business after deducting the operational costs. OCF is an important financial KPI used to predict the cash flow required for investments and expenses of your business operations. Compare the operating cash flow against total capital spent to evaluate if the cash flow is positive from your business functions.
Current Ratio
Current Ratio is a financial KPI that helps to measure the company’s short-term liquidity. It defines an organization’s ability to fulfill all company’s financial obligations as such vendor payments, account receivables, and current liabilities in one year. It is an investor indicator that is used to assess a healthy operating cycle of any business.
Quick Ratio/Acid Test
Quick ratio or acid test is the precise measure of a company’s financial health to evaluate organizations' short-term assets to cover its interim liabilities excluding the inventories & prepaid expenses.
Burn Rate
The burn rate is a financial KPI used to denote the investors and CFO’s whether the company’s operating costs are sustainable in the long run. It is a measure of cash utilization rate on a daily, weekly, monthly, quarterly & annual basis from its cash reserves to generate operating profit for the respective period. It also indicates the average time period required to generate the cash reserves that are projected to spend with operating profit in due time.
Net Profit Margin
The financial KPI used to measure profitability is called Net Profit Margin. It indicates the percentage of revenue generated as profit through the business, after deducting all operating costs incurred from the overall revenue generated by the company.
Gross Profit Margin
It is one of the critical KPI’s that indicates the financial health of the company is Gross profit Margin. It is a measurable percentage of revenue generated against the cost of the goods sold after deducting from net sales. The higher the gross profit percentage indicates the capability of the organization to manage operating costs and/or reinvest for innovation & growth.
Working Capital
It is a financial KPI used to measure a company’s liquid assets such as cash reserves, short-term investments & account receivables to meet its short-term liabilities. It is a measure of a company’s ability to make cash quickly for interim solvency.
Current Account Receivables
It is one of the critical financial KPI that measures the company’s outstanding cash reserves liable to receive as a result of services/products sold at credit for the client company as a letter of credit or in the form of invoices with an average due period of time to make payment. It is a measure of a company’s short-term liquidity factor to analyze its financial health. A high current account receivable indicates risks of loss for the company due to its inability to collect its receivables from long-term debtors.
Current Account Payables
A financial KPI measures the overall liabilities of the business for the short-term to all its creditors such as vendors, banks and financial organizations, or provisional investors. A high current account payable indicates the risks associated with the company to meet its interim liabilities with its available short-term assets.
Account Payables Process Cost
This is one of the financial KPI’s closely associated with incremental costs associated with accounts payable process such as invoice processing exceptions, late payments, missed discounts, duplicate payments, invoice data errors, purchase orders problems, shipping documents mismatches due to human errors, manual processes, and paper-based document management in any organization. One of the primary KPI’s that endanger your bottom-line is the manual AP process which costs your business more than employee wages since manual invoice processing costs $15 per invoice on average. Automating the account payable process helps businesses to spend just $2.36 per invoice saving $12.64.
Account Receivables Turnover
A financial KPI used to evaluate the potential of a business to efficiently issue a credit to its customers and collect its receivable payments in a timely manner. It indicates a greater risk if a company maintains a high account receivable for a longer tenure. It fails to utilize its funds for its business growth rather than offering an interest-free loan to its customers which may also end up in huge write-off.
Inventory Turnover
An important KPI used to analyze the sales potential of any business to quickly sell and replace its stock inventory within an average time interval such as days, weeks, or months. The low inventory turnover ratio indicates more problems to your business bottom-line such as high storage costs, outdated products, or product expiry risks, excessive capital locked as inventory storage affecting the cash flow of the company, etc.
Budget Variance
One of the sensitive financial KPIs that deals with the company’s accounting discrepancies in budgeting for operations, assets, and liabilities. Minimal variation indicates positive variance if expenses accrued are well-padded in budget with integral funds in excess. Significant variation may also indicate adverse variance if the budget is too optimistic with poor decisions and predictions.
Budget Creation Cycle Times
The KPI is used to measure the quality and value of leadership time invested in the budget creation cycle to research, plan, and agree on a corporate budget strategy.
Line Items Expenses
This financial KPI has substantial advantages to establish control over the use of resources, depending upon the expenditure detailing for each cost center. It indicates the CFO’s to plan cost-cutting measures when the cost center exceeds expenditure detailed in the budget line item without supplemental program or performance information.
Budget Iterations
One of the primary KPI to make certain the financial planning insights of the budget strategy will create a better business impact. The less the number of budget iterations indicates how well the key business drivers are researched, implemented sound practices to set the right tone and approach to formulate a strategic financial budget. Stats reveal top performers use 2 budget iterations while low performers use up to 9 iterations.
Sales Growth
One of the financial KPI measures a business potential to increase its net sales revenue during a fixed period in comparison with the previous period. The increase in sales growth indicates the business sustainability and profitable operations while the decrease hints worse strategic decisions.
Days Sales Outstanding
DSO is a crucial KPI to determine the effectiveness & efficiency of a business’s credit collection efforts. A high average collection period indicates that its time to optimize your collection activities and establish stringent credit & collection policies, timely payment rewards to
accelerate and motivate AR collections.
Vendor Expenses
A significant KPI to assess the strategic supply chain value of the vendor. Lower the vendor expenses allude that the procurement team makes necessary adjustments through
strategic sourcing to meet high value, low risk at lesser costs for the company. The increase in vendor expenses alarms the risks possessed in the supply chain that endangers the profitability of the company.
Payment Error Rate
The payment error rate is a vital KPI that directly impacts your day to day cash flow operations. Failure to authorize payments on-time, inadequate documentation, and lack of appropriate references are the general causes of increasing payment error rate. When there is a sudden spike in the percentage of payment errors due to processing error, you need to reassess your payment processing system.
Internal Audit Cycle Times
The internal audit cycle times are one of the KPI that highlight stakeholders and management to assess if the auditing goals are too broad or too numerous to measure in time. Long internal audit cycles indicate inefficient use of internal audit time, audit results are not timely reported and end up in stakeholder’s dissatisfaction.
Finance Error Report
A critical KPI that denotes the downside risk of your finance and business. The finance error report contains the number of inaccuracies that require investigation or clarification or references. An increase in the number of errors in financial statements may drag a thriving business to the ground.
Return on Equity
ROE is a prospective KPI used to measure a company’s capability to make higher profits efficiently from out of shareholder's investments. The financial KPI distinguishes how much revenue a company generates for every unit of shareholders' equity. The increase in ROE attracts more investments for the company’s growth goals.
Debt to Equity
DOE is a prospective KPI used to measure a company’s inability to make higher profits and accumulate debts against shareholders' investments. The financial KPI distinguishes how much revenue a company loses due to increasing debts. The increase in DOE indicates the shareholders to break up or quit investments to prevent more loss.
Process Management Costs
The financial KPI is a measure of increasing costs associated with managing people’s work & planning the growth into every business department. The lower the process management costs indicates the higher the assets for organizational growth.
Resource Utilization
The resource utilization KPI measures how profitable the professional service organizations are by comparing overall staff hours of the organization for a selected period against total billable hours of all resources in the same period. It indicates how well the human resource assets of the company are utilized properly for generating more profits.
Payroll Headcount Ratio
The financial KPI helps to analyze the ratio of average full-time HR resources involved in payroll processing against the number of employees supported within the organization. Comparing the number of FTE required to support payroll function per total number of employees is directly proportional to the size of the organization. Enterprise organization implies a degree of scale and thus achieves efficiency.
Finance Function Costs
One of the primary Cost KPI measures is the total cost consumed by the entire finance operations department inclusive of technology, systems, people, and process compared with total revenue generated. The higher the ratio of the finance function costs indicates that your finance operations need to be optimized or automated to keep costs down. The best average ratio of finance functions cost is 0.6% of total costs while the worst average is 2.0%.
Weighted Average Cost of Capital
This financial KPI enables the investors and shareholders to assess a company's potential of net profitability by eff the cost of each capital source by its relevant weight after-tax cost. The higher the WACC ratio is a sign of increasing the opportunity to maximize capital investments.
Return on Invested Capital
This investment KPI is a good indicator to assess a firm’s potential to allocate its capital under control efficiently on various profitable investments. It determines the growth rate of a company in comparison to past years to ensure if the company is creating or destroying value.
Customer Lifecycle Value
A key cash flow KPI to predict the net profit attributed to the overall future relationship with each customer associated with the business. It helps in measuring the duration it takes to recapture the investment required to acquire a customer.
Customer Acquisition Costs
CAC is a crucial business KPI that computes the average cost per new client acquisition by calculating the overall accumulated costs invested in a period to acquire a sum of clients over the same course of the period.
Monitor. Measure. Control
I Hope, all the above Financial KPIs will help you to improve your profitability in the upcoming years. Feel free to share if any KPIs you keep track, in addition, to offer additional value to the CFO Community.
