Businesses of all sizes use key performance indicators in order to see how well the business is performing and to improve. These indicators will vary for each business, but the basic principle remains the same. Monitoring the important financial metrics of your business will make a huge difference to your success. When building executive dashboards here are our top 5 metrics for tracking the financial performance of your company:
1.Gross Profit Margin
This is where you calculate the proportion of money left over from revenues after accounting for the cost of the goods you’ve sold and the services you’ve delivered.
This financial KPI refers to your total revenue minus the cost of goods sold, divided by your total sales revenue. It is the percentage of total sales revenue that you keep after accounting for all direct costs associated with producing your goods. It is one of the most important measures of the production efficiency of your company.
The higher your Gross Profit Margin, the more income you will retain from each dollar of sales.
2. Operating Profit Margin
This is where you track how much profit your company is generating on each dollar of your revenue. This key performance indicator shows the operating profit (earnings before interest and tax) as a percentage of your total earned revenue. This won’t include revenue from your firm’s investments or the effects of taxes.
You calculate this by dividing operating profit by your sales revenue. The Operating Profit Margin measures how profitable your business model is and indicates what is left over from your revenue after paying for all operational cost.
The higher the operating income, the more profitable your company is likely to be. If this number is declining or has gone stagnant then you need to take action quickly.
3. Operating Expense Ratio
In order to become even more profitable, you need to analyze and optimize your operating expenses. The operating expense ratio, or OER, shows your operational efficiency. It does this by comparing operating expenses to your total revenue. In general, the lower your operating expenses are, the more profitable you can expect your company to be.
Having this metric in your dashboard will mean you are able to analyze and track your operating costs in great detail.
Over time, any changes in your company’s OER should give you an idea of whether or not your company is scalable. Can you increase sales without increasing operating expenses?
4. Net Profit Margin
This metric allows you to analyze your bottom line and increase your net profit. The Net Profit Margin measures your profit after subtracting all operating expenses, depreciation, interest and taxes divided by the total revenue (net income x 100 / total revenue).
In finance, the net profit margin is one of the most closely tracked key performance indicators. It measures how well your company does at turning revenue into profits. As a percentage of sales, not an absolute number, it is often used to compare different companies. By doing this, you can see which of them are most effective at converting sales into profit.
The higher your net profit margin, the better off you are. If you notice a decline, you must go over this carefully to make amendments as soon as possible.
5. Current Ratio
Current Ratio is a liquidity ratio that measures your ability to pay your obligations in the short-term, often within the next 12 months. This financial metric is calculated by dividing your current liabilities (debt and accounts payables) by your current assets (cash, inventory and accounts receivables). The goal should be to have a ratio higher than 1. If your ratio is lower than this, you would be unable to pay off your obligations if they were suddenly due. This ratio is a key indicator of a company’s short term financial health and shows whether you are able to collect accounts due in a timely manner.
The higher your current ratio, the more capable you are of paying your bills in the short-term. Keeping an eye on this ratio is key to knowing you are on the right track.
How to get started with Executive Dashboards
By connecting with the experts at MBS ATA we will be able to help you decide which are the important KPIs for you. We will consider:
- the industry that you are in.
- your business size and location.
- where you are in your business life-cycle.
- what your short and long-term business goals are.
- any unique circumstances you have.
As a premier Accounting Technology & Advisory firm, we can aid your team in creating executive dashboards that matter. By building technology integrations between business and accounting systems your data will be available 24/7 for when you need it most.
Get in touch for a free 15-minute conversation to see how we can help you.