Your business’s Key Performance Indicators, or KPIs, are tools that measure and track progress in essential areas of company performance. The insights afforded by your KPIs allow you to be proactive in making changes to any areas that need help, as they provide you with a clearer picture of the overall health of your business. Continue reading to learn about three essential key financial performance indicators that you should be tracking.
Operating Cash Flow
It is crucial for businesses to monitor and analyze their Operating Cash Flow to have a better understanding of their ability to pay for deliveries and other routine operating costs. When used in comparison with total capital you have in use, this KPI shows if your operations are generating enough cash for support of capital investments you’re making to advance your business. Rather than just looking at your profits, the analysis of your ratio of operating cash flow compared to your total capital employed provides a deeper insight into the financial health of your company.
Debt to Equity Ratio
Another KPI that you should be tracking is the debt to equity ratio. This ratio is calculated by inspecting your business’s total liabilities in contrast to your shareholders’ equity, or net worth. This KPI shows how well your company is funding its growth, and if you are making the most of your shareholders’ investments. The number indicates how profitable your business is, and explains how much debt the business has accrued in attempting to become profitable.
Accounts Payable Turnover
The Accounts Payable Turnover KPI shows the rate that your business pays off suppliers. This ratio is very informative when compared over a few periods, as it is the result of dividing the total costs of sales during one period by your average accounts payable for that period. When you compare multiple periods and see a declining accounts payable turnover KPI, it may indicate that the length of time your company pays off suppliers is increasing.
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