Financial KPIs – Top 30 Financial KPIs that Every Financial Professional Needs to Know

Finance KPIs – Why are they needed?

Financial key performance indicators or financial KPIs are a high level measure of the profits, revenue, expenses, or other financial outcomes that specifically focus on relationships pertaining to accounting data. Financial statement metrics are almost always associated with a specific financial value or ratio. KPIs are metrics that provide insights into the financial and operational strength of a business. Financial KPI can be based on any kind of data that is important for the company’s performance, such as sales per square foot of retail space, click-through rate for web ads or accounts closed per sales person. KPIs for the finance and accounting department highlight crucial relationships in data, such as, the ratio of profit to revenue or ratio of current assets to current liabilities. Even a single KPI for financial and accounting can provide a useful snapshot of the business’s health at a specific point in time.

Finance KPIs can be even more effective when used to analyze trends and patterns over time, to measure progress against targets or to compare the business with other similar companies. Why are financial metrics and KPIs important for your business? In simple terms, financial KPIs are like indicators and warning lights that enable business leaders to focus on the big picture. With the help of finance KPIs, leaders can steer the company through financial hurdles and identify pressing issues without getting stuck into details of what goes on under the hood.

The main role of KPIs is to help companies determine which areas they are doing well and identify areas they need to improve. The actual financial statement metrics vary from company to company, but when KPIs are automated it becomes easier to track them. Once a set of KPIs are chosen as per unique business requirements, calculating and updating them can be automated. Automation also integrates the company’s accounting and ERP systems. This ensures that KPIs reflect the current state of the business and are always calculated in a standardized manner.

Automating KPIs is important for businesses of all types and sizes. When KPIs are automated, businesses can direct their finance and accounting resources to analyzing KPIs instead of expending effort and money on creating them. Large enterprises can manage voluminous data in an efficient manner rather than using error-prone spreadsheets. Defining the most useful and meaningful KPIs for your business can be challenging. The finance KPIs that are chosen will depend on your company’s goals, business type, and operating model.

Some of the finance KPIs like accounts receivable turnover and quick ratio are universally applicable, while other financial KPIs are specific to the industry. Financial KPI examples in the manufacturing industry include the status of inventory, while services businesses include revenue per employee while evaluating efficiency.

Types of Financial KPIs

Financial KPIs are classified based on the type of information they measure. Financial KPIs are broadly classified into 5 broad categories based on the information they track –

Profitability KPIs 

These KPIs measure metrics related to the profitability of the business. Profitability KPIs measure how well a company is performing in generating sales while keeping expenses low. Gross profit margin is a type of profitability KPI that refers to the total revenue minus the cost of goods sold or delivered, divided by your total sales revenue. The higher the gross profit margin you manage to acquire, the more income you retain from each dollar of your sales. Another profitability KPI is the operating profit margin which shows the operating profit margin as a percentage of total revenue earned. 

Liquidity KPIs 

These KPIs divide current assets by the current liabilities. These types of KPIs measure how well a company will manage short-term debt obligations based on the short-term assets it has on hand. Current ratio and quick ratio are financial KPI examples for measuring liquidity. The current ratio is calculated by dividing your current assets by your current liabilities. It measures your ability to pay your obligations in the short term, often within 12 months. Quick ratio or acid test considers the short-term liquidity positions that you can convert into cash quickly. 

Efficiency KPIs 

These KPIs measure how quickly a company can perform a certain task. Inventory turnover measures how quickly a company can convert an item from inventory to sale. The accounts receivable turnover is another efficiency KPI that measures how quickly you can collect your payments owed and displays a company’s effectiveness in extending credits. 

Valuation KPIs 

These KPIs measure the earnings of the business. Earnings per share and price-to-earnings ratio are two valuation KPIs that are used by finance teams. 

Leverage KPIs 

These metrics measure the amount of profit you generate for shareholders. Return on equity and debt to equity are examples of leverage KPIs. The debt-to-equity ratio looks at the company’s borrowing and level of leverage. This KPI compares the company’s debt with the total value of shareholder’s equity. Another leverage KPI is the return on equity which measures how much profit your company generates for your shareholders. Return on equity is calculated by dividing your company’s net income by the stakeholder’s equity. 

Top 30 KPIs for Finance and Accounting Departments

Financial management is one of the most important internal processes in an organization. Meticulous financial management ensures stability, good record-keeping, and tax compliance. To manage your finances efficiently and achieve better results over time, you need to introduce the right key performance indicator for finance and accounting processes. Here is a list of the top 30 financial KPIs that every finance and accounting person must know. Measuring and constantly monitoring KPIs are best practices for running a successful business. 

1. Gross profit margin 

This is a critical measure of the profitability and efficiency of the company’s core business. The gross profit margin refers to your total revenue minus the cost of goods sold (COGS) or service delivered, divided by the total sales revenue. This KPI signifies the percentage of total sales revenue that you keep after accounting for all direct costs associated with producing your goods. The company’s production efficiency is reflected by gross profit margin. The higher the gross profit margin, the more income you retain from each dollar of your sales. 

Gross Profit Margin = (Net sales – COGS)/Net Sales * 100

2. Return on sales (ROS) or Operating Margin 

This metric evaluates how much operating profit the company generates from each dollar of sales revenue. Return on sales is calculated as operating income, or earnings before interest and taxes (EBIT), divided by net sales revenue. Operating income is the profit a company makes on sales revenue after deducting COGS and operating expenses. This KPI is commonly used as a measure of how efficiently the company turns revenue into profit. 

Return on Sales = (Earnings before interest and taxes/Net Sales)*100

3. Operating cash flow ratio (OCF) 

This liquidity KPI ratio measures the company’s ability to pay for short-term liabilities with cash generated from core operations. It is calculated by dividing operating cash flow by current liabilities. The cash generated by a company’s operating activities is measured by OCF, while current liabilities include accounts payable and other debts that are due within a year. Operating cash flow utilizes the information from a company’s statement of cash flows, rather than income statement or balance sheet. This way the impact of non-cash operating expenses is eliminated. 

Operating cash flow ratio = Operating cash flow/current liabilities

4. Net profit margin 

This finance KPI is a comprehensive measure of how much profit a company makes after accounting for all expenses. The net income divided by revenue gives the net profit margin. Net income is often regarded as the ultimate metric of profitability because it is the profit that remains after deducting all operating and non-operating costs, including taxes. Net profit margin is expressed as a percentage. 

Net profit margin = (Net Income/Revenue) * 100

5. Current ratio 

The current ratio is a measure of the short-term liquidity of the company. The ratio of the company’s current assets to its current liabilities is the current ratio. Current assets are those that can be converted into cash within a year, which includes accounts receivable, cash, and inventory. Current liabilities include all liabilities that are due within a year, which includes accounts payable. When the current ratio is below one, it is a warning sign that the company does not have sufficient convertible assets to meet its short-term liabilities. 

Current ratio = current assets /current liabilities

6. Quick ratio 

This KPI is a measure of liquidity risk that measures the ability of a company to meet its short-term obligations by converting quick assets into cash. Quick assets are current assets that can be converted into cash without discounting or writing down the value. The quick ratio KPI is also referred to as the acid test because it measures the financial strength of a business. Companies aim for a quick ratio that is greater than 1. 

Quick ratio = quick assets/current liabilities

7. Working capital 

This is a liquidity KPI that is often used in conjunction with other liquidity metrics, such as the current ratio. Working capital compares the company’s assets with its current liabilities. The result is expressed in dollars instead of as a ratio. A low working capital may indicate that the company finds it challenging to meet its financial obligations. However, a very high working capital may be a sign that the assets are not being utilized optimally. 

Working capital = current assets-current liabilities

8. Gross burn rate 

This KPI is usually used by loss-generating startups to express the rate at which the company uses its available cash to cover operating expenses. The higher the burn rate, the faster the company will run out of cash unless it can attract more funding. Investors often monitor the gross burn rate when considering whether to provide funding. 

Gross burn rate = company cash /monthly operating expenses

9. Current accounts receivable (AR) ratio

This financial KPI reflects the extent to which the company’s customers pay invoices on time. The current accounts receivable ratio is calculated as the total value of sales that are unpaid but still within the company’s billing terms in relation to the total balance of all accounts receivable. A higher ratio is generally because it reflects fewer past-due invoices. A low ratio indicates that the company is having difficulty collecting money from customers and can be an indicator of potential future cash flow problems. 

Current accounts receivable = (Total accounts receivable- Past due accounts receivable)/Total accounts receivable

10. Current accounts payable (AP) ratio 

This is a measure of whether the company pays its bills on time. The current accounts payable ratio is the total value of supplier payments that are not yet due divided by the total balance of all AP. A higher current accounts payable ratio indicates that the company is paying more of its bills on time. The company’s cash flow problems can be eased by spreading out payments to suppliers. 

Current accounts payable = (Total accounts payable- Past due accounts receivable)/Total accounts receivable

11. Accounts payable (AP) turnover

This is a liquidity KPI that indicates how fast a company pays its suppliers. The accounts payable turnover looks at how many times a company pays off its average AP balance in a period, typically a year. It is a key indicator of how a company manages the cash flow. A higher ratio indicates that a company pays its bills faster. 

Accounts payable turnover = Net credit purchases/Average accounts payable balance for a period

12. Days payable outstanding (DPO)

This is another way of calculating the speed at which a company pays for purchases obtained on vendor credit terms. This metric converts AP turnover into a number of days. A lower DPO value indicates that the company is paying at a faster rate. 

Days payable outstanding = (Accounts payable *365)/COGS

13. Average invoice processing cost 

The average invoice processing cost is an efficiency metric that estimates the average cost of paying each bill owed to its suppliers. Processing costs often include labor, bank charges, systems, overhead, and mailing costs. The overall processing cost is influenced by factors like outsourcing and level of AP automation. A lower average invoice processing cost indicates a more efficient AP process. 

Average invoice processing cost = Total accounts payable processing costs/Number of invoices processed for a period

14. Accounts Receivable (AR) Turnover 

This KPI is a measure of how effectively the company collects money from customers on time. The accounts receivable turnover reflects the number of times the average AR balance is converted into cash during a specific period. This ratio is calculated by dividing net sales by the average AR balance during the period. 

Accounts receivable turnover = Sales on account/Average accounts receivable balance for period

15. Inventory turnover 

This operational KPI shows the number of times the average balance of inventory was sold during a period. A low inventory turnover ratio can indicate that the company is buying too much inventory or that sales are weak, while a higher ratio indicates less inventory or stronger sales. An extremely high ratio indicates that the company does not have enough inventory to meet the demand, limiting sales. 

Inventory turnover = COGS/Average inventory balance for period

16. Days Sales Outstanding (DSO) 

This metric is used by companies to measure how quickly its customers pay their bills. Days sales outstanding is the average number of days required to collect accounts receivable payments. DSO converts the accounts receivable turnover metric into an average time in days. A lower value of DSO means that customers are paying faster. 

Days sales outstanding = 365 days/Accounts receivable turnover

17. Days inventory outstanding (DIO) 

This is an inventory management KPI that provides a way to determine how quickly the company sells its inventory. It is a measure of the average number of days required to sell the item in the inventory. DIO converts the inventory turnover metric into a number of days.

Days inventory outstanding = 365 days / Inventory turnover

18. Budget variance 

This KPI compares the company’s actual performance to budgets or forecasts. Budget variance helps analyze any financial metric like revenue, profitability, or expenses. The variance is usually stated in dollars or as a percentage of the budgeted amount. Budget variances can either be favorable or unfavorable; where unfavorable variances are shown in parentheses. A positive variance value is considered favorable for revenue and income accounts, while unfavorable for expenses. 

Budget variance = (Actual result – budgeted amount)/Budgeted amount *100

19. Cash conversion cycle 

This finance metric calculates the time it takes for a company to convert a dollar invested in inventory into cash received from customers. The cash conversion cycle accounts for both the time it takes to sell inventory and the time it takes to collect payment from customers. This KPI is expressed as a number of days. 

Operating cycle = Days inventory outstanding + Days Sales outstanding

20. Leverage KPI 

Also known as financial leverage or equity multiplier. This KPI refers to the use of debt to buy assets. If all the assets are financed by equity, the multiplying factor is taken as 1. As debt increases, the multiplying factor increases from 1, which demonstrates the leverage impact of the debt, which ultimately increases the risk for the business. 

Leverage = Total Assets/Total Equity

21. Sales growth rate 

This is one of the most critical revenue KPIs for many companies, which shows the change in net sales from one period to another. The sales growth rate is expressed as a percentage; a positive value indicates sales growth while a negative value indicates the contracting of mean sales. Companies often compare sales to the corresponding period during the previous year or changes in consecutive financial quarters. 

Sales growth rate = (Current net sales – Prior Period net sales)/Prior period net sales*100

22. Fixed asset turnover ratio 

This KPI shows a company’s ability to generate sales from its investment in fixed assets. The fixed asset turnover ratio is relevant to companies that make significant investments in property, plant, and equipment in order to increase output and sales. A higher ratio is indicative of the effective usage of fixed assets, while a lower ratio means that assets are underutilized. The average fixed asset balance is calculated by dividing total sales by net accumulated depreciation. 

Fixed asset turnover = Total sales / Average fixed assets

23. Selling, general and administrative (SG&A) Ratio 

This efficiency metric indicates what percentage of sales revenue is used to cover SG&A expenses. These expenses can include a broad range of operational costs, including rent, advertising, and marketing. A lower SG&A is preferred. 

SGA = (Selling+General+Administrative expense)/Net Sales Revenue

24. Return on assets 

This efficiency KPI shows how well an operations management team makes use of its assets to generate profits. This KPI takes into account all assets, including current assets such as accounts receivable and inventory. This includes fixed assets, such as equipment and real estate. Return on assets excludes interest expense, as financing decisions are typically not within operating managers’ control. 

Return on Assets = Net Income/Total assets for period

25. Interest Coverage 

A long-term solvency KPI, interest coverage quantifies a company’s ability to meet contractual interest payments on debt such as loans or bonds. This KPI measures the ratio of operating profit to interest expense. A higher ratio suggests that the company will be able to service debt more easily. 

Interest Coverage = EBIT /Interest expense

26. Earnings per share (EPS) 

This profitability metric measures the net income that is generated by a public company per share of its stock. This is typically measured by the quarter and by the year. Earnings per share (EPS) metric is used by analysts, investors, and potential acquirers, to measure the company’s profitability and also to calculate its total value. The weighted average in the formula is basically the average number of shares outstanding or available during a given period. The total number of shares can change due to stock splits, stock repurchase, etc. When EPS is based on the total share outstanding at the end of the reporting period, companies could manipulate results by repurchasing stock at the end of a quarter. 

Earnings per share = Net income/ Weighted average number of shares outstanding

27. Debt to equity ratio 

This ratio looks at the company’s borrowing and level of leverage. It compares the company’s debt with the total value of shareholder’s equity. The calculation includes both short and long term debt. A high debt to equity ratio indicates that the company is highly leveraged. This may not be a problem if the company can use the money it borrowed to generate a healthy profit and cash flow. 

Debt-to-equity Ratio = Total liabilities/Total shareholder’s equity

28. Total Asset Turnover 

The total asset turnover is an efficiency ratio that measures how efficiently a company uses its assets to generate revenue. The higher the turnover ratio, the better the performance of the company. 

Total asset turnover = Revenue/(Beginning total assets + Ending total assets/2)

29. Return on Equity (ROE) 

Return on equity is a profitability ratio measured by dividing net profit by shareholder’s equity. It indicates how well the business utilizes equity investments to earn profit for investors. 

Return on equity = Net profit / (Beginning Equity+ Ending Equity)/2

30. Seasonality 

Seasonality is a measure of how the period of the year is affecting your company’s financial numbers and outcomes. This holds good in industries that are affected by high and low seasons, where seasonality KPI helps sort out confounding variables and see the numbers for what they truly are. 

It is important to note that there is no absolute good or bad when it comes to financial KPIs. Financial metrics or KPIs are to be used to measure the performance of the company and can be compared to prior years or competitors in the industry to see whether the company’s financial performance is improving or declining, and how it is performing relative to others. Setting and tracking the right financial KPIs can make all the difference for your business in a competitive industry. With all the essential KPIs listed above, businesses can make informed decisions, eliminate maverick spend, and carry out safe and scalable financial forecasting. 

Automating Financial KPIs

Automating financial KPIs is important for companies of all sizes. It means that small businesses can direct more of their resources to analyzing KPIs instead of expending effort and money to create them. Larger enterprises can manage voluminous data in a better way than by using error-prone spreadsheets or other manual methods. 

Apart from the common financial KPIs listed above, businesses may want to track specialized KPIs that delve into their inner operations related to analyzing inventory, sales, receivables, payables, and human resources. Manual mapping and calculating these KPIs from general ledger accounts can be cumbersome, time-consuming, and error-prone. This is the main reason businesses go for finance KPI automation. Automating the calculations and creating dashboards will centralize all these important KPIs. 

Cflow is a no-code workflow automation solution that can automate finance KPI calculation and the creation of dashboards. The built-in real-time dashboards and KPIs that are tailored to different roles and functions within the organization. Users can easily add customized KPIs to support specific requirements or goals. The automated finance workflows in Cflow can automate KPI calculations and provide real-time updates via centralized dashboards. All information is automatically updated as the platform processes transactions and other financial data. 

Financial KPIs and metrics help business leaders and managers to quickly get a pulse of how their company is performing and track important changes over time. The leadership can use finance KPIs to develop key objectives and keep their employees focused on measurable goals. An automated solution like Cflow provides automated, accurate, real-time KPIs that keep the company moving towards those goals and objectives, instead of getting lost in layers of data and reports. 

Here is why Cflow is the right choice for automating your finance KPIs-

AI-based workflow automation – The no code AI-based automation can ensure the safety of finance data.

Customizable templates – With the customizable templates in Cflow, users can create workflows quickly and effectively. 

Security and encryption – The data encryption feature in Cflow ensures safety and security of critical finance data.

Rules engine – The sophisticated rules engine in Cflow allows users to automate the formulas for calculating finance KPIs.

Conclusion

Financial KPIs can mirror the financial performance of the company. Managing and tracking finance KPIs through a manual system can be cumbersome and time consuming. When the calculation and tracking of financial KPIs is automated, it gives the finance team to analyze and strategize. Embrace simple and effective workflow automation with Cflow. Stay on top of your finance KPIs with Cflow. Sign up for the free trial right away.

Financial KPI FAQs

What are financial KPIs? 

Finance KPIs or financial KPIs are metrics that are directly tied to financial values that a company uses to monitor and analyze key aspects of its business. 

What are the 5 types of financial KPIs?

Profitability, leverage, valuation, liquidity, and efficiency are the 5 types of finance KPIs.

What are examples of KPIs?

Gross profit margin, operating profit margin, net profit margin, quick ratio, current ratio, are some examples of finance KPIs. 

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