The 10 Best Finance KPIs to Put You on Track for a Successful Future (2024)

Welcome back to KPI Marathon!

In the aforementioned post, we covered the fundamentals of KPIs. What they are, their significance and how you should use them. This subsequent post goes into more detail by looking at KPIs relevant to different departments within your company, namely, Finance KPIs.

“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” – Ayn Rand

Keeping tabs on your finances is a constant endeavour. You need to monitor every penny you spend, so you know where your money is going and how best to get it back. On top of that, you also need to track the financial performance of your business and plan accordingly for the future. Fortunately, there are several key Performance KPIs that can help you achieve both goals. In this article, we'll explain what they are and why tracking them can help you reach your financial objectives sooner rather than later.

Let´s get started!

Debt to Equity Ratio

Debt to equity ratio is another key metric you should track to assess your company's debt position. You can also use it as an ongoing metric to track the health of your debt position. The debt to equity ratio is the ratio of total debt (both long-term and short-term) to the total equity in a business. The higher the ratio, the more likely it is that the business will become insolvent if it doesn't have the capital to service its debt.

A high debt to equity ratio can be a red flag. However, it's important to note that a high ratio doesn't necessarily mean that the business will go bankrupt. A high ratio can indicate that the company's debt level is too high, but it doesn't automatically mean the company will collapse.

“A formal education will make you a living; self-education will make you a fortune.”

- Jim Rohn

Net Present Value (NPV)

What is NPV? Net Present Value (NPV) represents the amount of money that will be earned by a company over a certain period by taking future cash flows and discounting them to their current value. NPV is a useful metric to evaluate a company's financial prospects and compare it to other companies.

If a company has a high NPV, it means it is earning more money than it costs to keep it running. In other words, the company is generating a profit. NPV can come in handy when making investment decisions. For example, a business owner can use NPV to compare two investments to decide which one will bring in the most profit in the shortest amount of time.

Cash Flow Return on Investment (CFROI)

What is CFROI? This key financial metric displays the percentage of the cash flows that were returned to the investors in the form of profit. For example, if a company earns $1 in profit for every $10 of cash invested by the shareholders, the company will have a CFROI of 10%. CFROI is an excellent measure of a company's profitability and its ability to generate returns for shareholders.

“Financial freedom is available to those who learn about it and work for it.”

-Robert Kiyosaki

A high CFROI indicates that the company is doing well, generating a high level of profit while also reinvesting a good portion of the profit back into the company. This metric can be used to compare different companies. For example, a company with a 10% CFROI can be compared to a company with a 5% CFROI to get an idea of which will likely generate a higher return for shareholders.

Working Capital Turnover Rate

What is the working capital turnover rate? This metric is more commonly referred to as the working capital turnover rate or simply as the Wmckt Rate. The working capital turnover rate is another key metric that financial analysts use to determine a company's financial health.

The working capital turnover rate tells you how often a company turns its short-term liabilities (e.g. inventory, accounts payable, and short-term debt) into its short-term assets (e.g. cash, accounts receivable, and short-term investments).

If the rate is high, it means that a company is often using its short-term assets (e.g. cash, receivables, and inventory) to cover its short-term liabilities (e.g. debt). This means the company is often operating in the red, which is not something you want to see in a company's financial metrics.

Profitability Ratio

What is the profitability ratio? The profitability ratio is a key financial metric that analyzes the profit a company has earned relative to the cash it has used to operate. The ratio of profit to sales is an important financial ratio. It shows a company's ability to turn sales into profit. A high-profit ratio means that the company is earning a high profit while selling a high level of products. This ratio can be useful in seeing how a business performs relative to its competitors. For example, a company with a profit ratio of 10% may be doing well, but it may not be operating at the top of its game and may need to improve certain aspects of its business if it wants to achieve higher levels of profit.

“The secret of getting ahead is getting started. The secret to getting started is breaking your complex overwhelming tasks into small manageable tasks and then starting on the first one.” ― Mark Twain

Sum of The Parts Balance Sheet Coverage Rate

What is the sum of the parts balance sheet coverage rate? This is yet another key financial metric that analyzes a company's ability to cover its debts. The sum of the parts balance sheet coverage rate tells you how often a company manages to cover its debts from the assets part of its balance sheet every year.

This metric can also show how much debt a company has. A high level of debt can be problematic because it means a company is relying on someone else for repayment. In this case, if something goes wrong, the creditors can go after the company for repayment.

Key takeaway

These are only a few of the many performance KPIs you can use to monitor the health of your company. And, with the help of these KPIs, you can get a better idea of where your business is at and where it needs to be going.

What's Next?

Now that you have an overview of the best financial KPIs, you may be wondering what you should do next. To help answer that question, we've created a step-by-step guide to financial KPIs that will walk you through the process of creating your first set of financial KPIs.

Examples in your guide:

Next, we'll explain how to track your performance, which will help you get a better idea of where your company stands and what it needs to do to improve.

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Interested in learning more about KPIs, how to use them, or even how to build them from scratch?