What is a Financial KPI?
A financial Key Performance Indicator (KPI) or metric is a quantifiable measure that a company uses to gauge its financial performance over time. Financial KPIs are used to help determine a company’s operational achievements from a financial perspective, often being compared to those of their competitors in the same sector.
Under modern day reporting standards, companies are formally obligated to present their financial data in the following statements: balance sheet, income statement, and cash flow statement. These three statements are data rich and full of financial metrics. However, not all key financial performance indicators are directly shown in the standard reporting and require some calculating. This post will go over both the following explicit and implicit financial KPIs that you should be aware of, how they are calculated, and how financial reporting software can help simplify this process for your finance department:
|Operating Cash Flow||Accounts Payable Turnover||Earnings Per Share|
|Unlevered Free Cash Flow||Cash Conversion Cycle||Price-to-Earnings Per Share Ratio|
|Levered Cash Flow||Return on Assets||Book Value Per Share|
|Net Present Value||Return on Equity||Price-to-Book Value Ratio|
|Future Value||Return on Investment||Price-to-Sales Ratio|
|Break Even Point||Total-Debt-to-Assets Ratio||Price-to-Cash Flow Ratio|
|Payback Period||Total-Debt-to-Equity Ratio||Average Annual Growth Rate|
|Discounted Payback Period||Degree of Financial Leverage||Compound Average Growth Rate|
|Internal Rate of Return||Interest Coverage Ratio||Number of iPhones Sold|
|Working Capital||Gross Profit Margin||Number of Monthly Active Users|
|Quick Ratio||Operating Profit Margin||Average Revenue Per User|
|Current Ratio||Net Profit Margin||Number of New Subscribers|
The Fundamental Finance KPIs and Metrics – Cash Flow
When looking at financial metrics for any company, the cash flow statement is the first place we think that people should be looking. Cash flow is huge. Without it, you can’t really run a sustainable business. Check out these nine cash flow financial KPI examples to get you into the swing of things:
- Operating Cash Flow – This is one of the most fundamental financial metrics that exists. It should be the first thing you look for on the cash flow statement. This key financial metric gives a snapshot of the financial health of your company by measuring the amount of cash generated by normal business operations. A positive operating cash flow will allow the company to spend for the expansion of its business, while a negative cash flow can spell financial trouble. Without enough cash on hand to support a short-term negative cash flow, external financing may be required.Operating Cash Flow = EBIT + Depreciation – Taxes – Change in Working Capital
- Unlevered Free Cash Flow (UFCF) or Free Cash Flow (FCF) – While there is no such thing as a free lunch, there is a free cash flow financial metric. A company’s free cash flow shows how much cash a company is generating after taking operating costs and investments into account. It is important to note that interest payments are generally excluded from the free cash flow calculation. However, you can use a company’s FCF to see if they generate enough income to cover their interest or dividend payments. This can be used as a leading KPI for the finance department to identify problems before they show up on the income statement.Unlevered Free Cash Flow = Operating Cash Flow – Capital Expenditures
- Levered Cash Flow (LCF) – Leverage can be a great asset to a company. It can also be a great detriment to a company if not used properly. The levered cash flow is quite similar to the unlevered free cash flow. However, this financial KPI will tell you how much cash flow a company has after meeting all its financial obligations (interest and debt payments). Failure to meet debt obligations can lead to financial disaster. The LCF also gives analysts, investors, and other shareholders an idea of how much cash flow a company has for expanding its business or paying dividends.Levered Free Cash Flow = EBITDA – Change in Working Capital – CAPEX – Debt Payments
- Net Present Value (NPV) – This is a financial metric that reconciles future cash inflows and outflows over a period as a present value. This key performance indicator is often used when analyzing the profitability of a potential project or investment. Should the NPV be positive, it indicates a profitable endeavor, while a negative NPV indicates a poor investment. In the most basic sense of the equation, NPV can be calculated as follows:Net Present Value = Today’s Value of Expected Cash Flows – Today’s Value of Invested CashA more mathematical and complicated version of the equation can be seen here (if math wasn’t you strong point in school, just show it to your Excel guru and they will have you covered):where:Ct = Net cash inflow-outflow over a single time period, t.t = Number of time periodsi = Discount rate of return that could be earned in an alternative investment over a single time period, t.
- Future Value (FV) – This is a financial performance indicator that uses an assumed rate of return to estimate the value of an asset at a future date. This metric is particularly important as it can help make financial decisions that will impact the direction a company may choose to take. When considering different expansion plans, a future value calculation is often used as one of the comparison tools. While this is often helpful, the future value calculation has a significant shortfall. The calculation is only as good as the assumed rate of return, which can be subject to external factors—for better or worse.The first equation provided is a simple future value calculation:Future Value = Present Value * (1 + (Interest Rate * Time))The second equation provided is a compound interest future value equation:Future Value = Present Value * (1 + Interest Rate)Time
In the two equations above, the present value represents how much you and your company are willing to invest now. The Interest Rate is the expected annual rate of return, while time is the number of years that the investment will span.
- Break-Even Point (BEP) – Depending on the context, the break-even point can mean different things. However, that doesn’t change how it functions in principal. The break-even point represents when total revenue and total costs are the same. The point at which no profit or loss exists. Your capital costs have been recovered in full, along with your opportunity cost. The most classic example of BEP analysis is how many units of a product you need to produce and sell to break even. Other applications include options and futures trading in the equities markets.Break Even Point = Fixed Costs / Gross Profit Margin
- Payback Period – This is a measure of the amount of time it takes for an investment to pay itself off. If you want to think about it another way, it is the amount of time it takes to reach the investment break-even point. This financial metric is often used when making decisions on capital expansion projects or retrofit projects with more efficient equipment. Needless to say, the shorter the pay back period, the more attractive the investment is.Payback Period = Initial Capital Cost for Project / Annual Savings or Earnings from Project
- Discounted Payback Period – This financial KPI is very similar to the payback period above. It differs from the simple payback period by taking the time value of money into account. The discounted payback period financial metric is more complicated in its calculation, making it more appropriate for detailed budgeting and feasibility analysis.This calculation is best performed using a table or spreadsheet. Time periods (generally years) are placed in one column, and their associated cash flows in the column beside them. The cash flows are then calculated to be their present value using the discount rate. See the example below. Let us assume that the discount rate is 10%.
Year Cash Flow Present Value 0 -$500.00 -500.00 1 $200.00 $181.82 2 $200.00 $165.29 3 $200.00 $150.26 Total $100.00 -$2.10
In this example, you can see that the simple payback period would have been 2.5 years. However, when you apply the discounted cash flow model, the capital cost is still not paid back after 3 years. This helps portray how the simple payback period should be used as a back of the napkin calculation when discussing ideas, but the discounted payback period should be used when seriously considering a project.
- Internal Rate of Return (IRR) – This is a commonly used financial key performance indicator that calculates the rate of return that would create a net present value of zero. This, in turn, is used to evaluate the attractiveness of the investment. An IRR that is above the company’s required rate of return should be taken into consideration, while an IRR that is below the desired rate of return should not be considered.Where:Ct = Net cash inflow-outflow over a single time period, t.C0 = Initial investment costt = Number of time periodsIRR = Internal rate of return (what we are trying to determine)These cash flow key result areas (KRA) and KPIs are important for the finance department of any company. However, they are not the only financial metrics that a company should be keeping track of. These are just the tip of the iceberg. Let’s look at what the top financial KPIs are made of.
What Makes an Insightful Key Performance Indicator (KPI) for the Finance Department?
Most of the financial KPIs and metrics that you will come across while working are fairly tried-and-true. Some of them vary a little by industry, but through financial reporting requirements, they have been standardized. Maybe you have a new tech company doing something innovative and these classic financial KPIs don’t apply as well to your business. This section will outline what you should take into consideration when creating your own financial metrics.
- A goal. All KPIs should be built around an objective. This objective needs to be clearly defined, have a timeline, and be achievable. It is pointless to chase after something unattainable.
- Quantifiability. A KPI needs to be something that can be tracked using numbers. Nothing should be left to subjective interpretation.
- Data sources. A reliable and constant data source is of upmost importance. A set procedure should outline how and when the data is collected. This is often best handled by a KPI dashboard.
- Reporting. This is the most important aspect of KPIs in our opinion. You have taken all this time to set goals, collect data, and compile it. Now it is time to present the data. We suggest the use of a financial reporting software for this.
We have covered a lot of information. As a recap, we have talked about what a financial KPI is, why financial reporting is important, cash flow metrics, and how to create your own financial KPIs. We will now move onto the key financial metrics that can be derived from the balance sheet and the income statement.
The Balance Sheet and the Income Statement
The balance sheet and the income statement are the two other financial reporting documents that provide a substantial amount of information pertaining to financial KPIs and metrics. In the following sections, we will go over financial KPI examples that can help when evaluating a company’s liquidity, leverage, management effectiveness, profitability, valuation, and growth.
Liquidity Financial Performance Indicators
Cash is king. That is a pretty common phrase thrown around, right? While it may not be true in all situations, it is when it comes to financial liquidity. Financial liquidity is a measure of how easily a company can convert its assets into cash. After cash, the most liquid assets are equities – like stocks and bonds. They can be liquidated and turned into cash within a couple days. Illiquid assets would be things like real estate and equipment as they can take a long time to sell. Here are five liquidity KPIs for the finance department to keep track of:
- Working Capital – Contrary to popular belief, working capital is not the amount of money you currently have working for you. It is quite the opposite. Working capital represents that amount of money you have on hand, ready to be put to work. This financial KPI gives you a quick snapshot of a business’ financial health. A cash strapped company is not a healthy company.Working Capital = Current Assets – Current Liabilities
- Quick Ratio – This financial metric is commonly referred to as the “Acid Test Ratio” (acid was historically used to determine if gold was genuine or not). It gives you a “quick” check on the financial health of company by showing the company’s ability to immediately pay its short-term financial liabilities.Quick ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities
- Current Ratio – Similar to quick ratio above, this financial metric measures a company’s ability to meet its short-term financial obligations. Where the current ratio differs from the quick ratio is the time horizon. The quick ratio aims to pay off all short-term obligations immediately, while the current ratio looks at what can be turned into cash within a year.Current Ratio = Current Assets / Current Liabilities
- Accounts Payable Turnover – This finance metric is a measure of how long it takes a company to pay their suppliers. This metric is best used as an internal financial key performance indicator. The ratio should be taken over multiple consecutive time periods and compared. An increasing ratio means that you are paying your suppliers faster and faster. This will help increase your rapport with vendors, and you may be privy to discounts based on quick payment times. A decreasing ratio on the other hand means that a company may be having some cash flow troubles and is starting to have a hard time meeting financial obligations.Accounts Payable (AP) Turnover = Total Supply Purchases / ((Beginning AP – Ending AP) / 2)
- Cash Conversion Cycle (CCC) – The cash conversion cycle is exactly as the name implies: a metric that measures how many days it takes for a company to convert its purchase of inventory back to cash. Specifically, it measures the time required by a company to sell inventory, collect receivables, and pay its bills. This financial metric should be used and monitored over several time periods. A decreasing CCC time means that your company is becoming more efficient with its money. While it is good to compare the CCC time against other companies, it is best to keep it within the same sector, as CCC can vary sector to sector.CCC = Days of Inventory Outstanding + Days Sales Outstanding – Days Payables Outstanding
These five financial liquidity KPIs will keep your company on track to ensure you don’t run into cash flow issues. While liquidity is essential to helping drive a company forward, management also plays a critical role. Therefore, we have KPIs that monitor how effective management is.
Financial KPI Examples for Management Effectiveness
Management has a very large impact on the performance of a company, from making decisions on what direction the company will take in the future to how well employees are treated. However, if you don’t work at the company, it is sometimes hard to see how effective management is. That is why we implement finance metrics. Check out these three financial key performance indicators used to evaluate management effectiveness:
- Return on Assets (ROA) – Your company has a ton of assets. Factories, machinery, vehicles, you name it. In fact, you have two vehicles for every employee. Does that seem necessary? Maybe the capital used to buy those extra cars could have been deployed in a more effective way. The return on assets financial metric indicates how profitable a company is relative to its assets. A higher return on assets is better as it indicates a higher asset (and capital) efficiency.It should be noted that this financial metric is not the end-all-be-all management metric. It is best utilized when comparing a company to its previous performance, or peers in the same industry.Return on Assets = Net Income / Total Assets
- Return on Equity (ROE) – This finance metric is used to asses how efficiently a company is able to utilize shareholder’s equity. To quantify this financial performance indicator, a company’s net income is compared to the amount of equity shareholders have in the company. A low return on equity shows shareholders that management is not effectively using their investment, and they could be getting better returns by putting their money somewhere else. A high or increasing return on equity indicates the management is using the equity effectively or growing the business.Return on Equity = Net Income / Average Shareholders’ Equity
- Return on Investment (ROI) – This financial performance indicator measures the amount of money an investment has made relative to the cost of the investment. This financial metric is particularly useful when comparing the efficiency of previous investments to help make decisions on future investments.Return on Investment = (Current Value of Investment – Cost of Investment) / Cost of Investment
We can track how effective management is by using tools such as financial metrics and KPIs. Likewise, management has several tools at their disposal that they can use when leading a company. One of these tools is leverage. Management can decide to borrow funds in order to meet certain company objectives.
Examples of Leverage Financial Metrics
Have you ever tried moving a big rock by pushing on it? It doesn’t really move. But if you get a big stick and wedge it below the rock, you have a higher chance of the rock moving. That is because you are using leverage. This example isn’t financial leverage, but it’s a similar concept. Financial leverage is the concept of borrowing money to provide your company with a bigger stick. This stick can be used to finance CAPEX, or even pay down other debt that has a higher interest rate. Below are five key performance indicators for the finance department:
- Total-Debt-to-Asset Ratio – As the name implies, this financial KPI measures the total amount of debt a company has and compares it to the company’s assets. This is a ratio that is better kept on the lower side. If the ratio is too high, a company may have difficulties acquiring future loans, as it shows that they have a higher chance of defaulting on their obligations. At the same time, all companies should make use of at least a little bit of debt to help fund expansion.Total-Debt-to-Asset = (Short-Term Debt + Long-Term Debt) / Total Assets
- Total-Debt-to-Equity Ratio – This key financial metric measures the liabilities a company has against the shareholder’s equity. This financial metric acts as a check to see how much debt is being used to fuel growth. A ratio larger than one indicates that the company has more debt than the shareholder’s equity can cover in the event of a downturn. As such, it can be concluded that the higher the ratio, the higher the risk to shareholders.Total-Debt-to-Equity = (Short-Term Debt + Long-Term Debt) / Shareholder’s Equity
- Degree of Financial Leverage (DFL) – This finance KPI is a little less intuitive than the others we have covered thus far. It evaluates how sensitive a company’s earnings (EPS) are relative to its operating income (EBIT). A DFL larger than one indicates that changes in a company’s operating income will have an amplified effect on the earnings per share. For example, if a company’s DFL=1.5, and EBIT doubled year over year, it can be expected that the company’s EPS will have tripled.Degree of Financial Leverage = Percent Change in EPS / Percent Change in EBIT
- Interest Coverage Ratio – Here at insightsoftware, the interest coverage ratio is one of our favorite financial metrics because it serves two functions at the same time. It can analyze the debt levels of a company as well as the company’s profitability. It does this by taking the company’s earnings before interest and taxes (EBIT) and dividing it by the company’s interest payments over the same period. This ratio is often used by lenders when considering a loan, as it gives an idea of how much risk they will be taking on. A high coverage ratio would tell lenders that providing a loan would be relatively low risk, while a low coverage ratio would make lenders think twice about providing a loan.Interest Coverage = EBIT / Interest Expense
Leverage can be one of the most controversial topics, which makes it fun to think about. A lot of people hate the idea of debt, while other relish in it. Just remember the old saying, “It takes money to make money.” This might motivate you to use leverage.
Profitability KPIs for the Finance Department
Money. Dollars. Euros. Yen. Everyone wants more of it. How do you get more of it? By being profitable. Profitability KPIs and metrics are extremely important for the finance department. While the finance department isn’t directly responsible for making a company profitable, they are responsible for letting the key decision makers know how well the company is doing. Here are four financial profitability metric examples:
- Gross Profit Margin – The gross profit margin financial metric is the first profitability measure that any company will check. The gross profit margin takes the company’s net sales and subtracts the cost of good sold. This number is then divided by the net sales.Gross Profit Margin = (Net Sales – Cost of Goods Sold) / Net Sales
- Operating Profit Margin – This measure of profit goes one step further than the gross profit margin. The operating profit margin subtracts the company’s operating expenses from the gross profit to obtain operating income. Like the gross profit margin, this is then divided by the net sales.Operating Margin = Operating Income / Net Sales
- Net Profit Margin – This is arguably the most referenced “profit margin” metric. It is safe to assume this is what people are referring to when they talk about a company’s profit margin. The net profit of a company is calculated by subtracting a company’s expenses from its revenue. The net profit margin takes it one step further and divides this number by the revenue. In simple terms, this financial metric compares net income relative to revenue. As a rule of thumb, a net profit margin greater than 10 percent is considered very good.Net Profit Margin = Net Income / Net Sales
- Earnings Per Share (EPS) – This is one of the most quoted financial KPIs in the world. Every single financial earnings release will announce the company’s earnings per share. This financial metric takes a company’s profit and divides it by the number of outstanding common shares. Historically, a company would try to increase its EPS by generating more profits. In more recent times, companies have been partaking in share buy back programs, which reduce the number of outstanding common shares. This is considered an alternate way for a company to deploy its excess cash when a company cannot find attractive investments and wants to bring value to its shareholders.EPS = (Net Income – Preferred Dividends) / (End-of-Period Common Shares Outstanding)
Profitability is key to building a sustainable company. Without profits, a company would cease to exist. But once the company is profitable and you are maybe thinking of making your exit, how do you know what your company is worth? You can start by looking into valuation metrics.
Valuation KRAs and KPIs for the Finance Department
It is very common for companies to be bought and sold. There are also millions of public company shares exchanged each day on stock exchanges. But how do you know what a share is worth? This is where valuation metrics come into play. Below are five different KPI indicators for the finance department to help assess the value of a company:
- Price-to-Earnings Per Share (P/E) Ratio – This is probably the most commonly used valuation metric. Any time you look up a publicly traded company on a finance website or app, the P/E ratio is always cited. This ratio measures a company’s share price relative to its earnings per share. This is one of the easiest ways to compare valuations of companies in the same industry. It is often used to check if companies are over- or undervalued.Price-to-Earnings Per Share = Market Value Per Share / Earnings Per Share
- Book Value Per Share (BVPS) – This is by far insightsoftware’s preferred valuation KPI. The BVPS financial metric can quickly identify companies that are potentially undervalued. BVPS represents the shareholder’s equity in a company on a per share basis. This means that if a company were to instantly shut its doors, sell off its assets and pay off all debts, this is how much each shareholder would receive. Thus, it is generally perceived that a company is undervalued when its stock price is trading below its BVPS. However, it is always suggested that you do your due diligence and investigate why a stock is trading below its BVPS.BVPS = (Total Shareholder Equity – Preferred Equity) / Total Outstanding Shares
- Price-to-Book Value Ratio – This financial performance indicator measures a company’s share price relative to its book value. This metric is an extension of the BVPS that we talked about above. The price-to-book value ratio makes comparing companies easier as it disregards share price differences by making everything relative. A ratio larger than one indicates that you are paying extra money for the share relative to its book value. If immediate bankruptcy were to occur the day after you purchased shares, you would be at a loss. A ratio less than one could indicate an undervalued stock, or a company that may have some large financial risks associated with it.Price-to-Book Value Ratio = Market Price Per Share / Book Value Per Share
- Price-to-Sales (P/S) Ratio – The price-to-sales financial valuation metric measures a company’s stock price relative to its revenue. This KPI indicator for the finance department is calculated by taking a company’s share price and dividing it by the company’s revenue over the past twelve months. This can be used to evaluate a company’s value relative to its industry peers.Price-to-Sales Ratio = Share Price / Sales Per Share
- Price-to-Cash Flow (P/CF) Ratio – This finance KPI compares a company’s share price to its operating cash flow per share. This ratio can be particularly useful when looking for undervalued stocks. There are often situations in which companies have large single time non-cash expenses (depreciation, amortization, stock compensation, etc.). These expenses can manipulate the earnings report and make a company look unprofitable, when they actually have very strong cash flows. If you see a low P/CF ratio, there is a chance that they are undervalued, and will report stronger earnings in the subsequent quarters.Price-to-Cash Flow = Share price / Operating Cash Flow Per Share
We have now covered a substantial number of financial KPIs and metrics. This can be a bit overwhelming to absorb all at once. In fact, most people find it to be overwhelming, even those who work in finance. That is why financial reporting software and dashboards were created.
Streamline Your KPI Reporting with Financial Reporting Software
Public or private, large or small, GAAP or IFRS, your company will be reporting finances in some shape or form. We at insightsoftware aim to make this process as smooth and painless as possible for you through the use of KPI dashboards and financial reporting solutions. Let’s check out some of the benefits our reporting software has to offer:
- Managing large data dumps. No one likes having a huge pile of work dumped on them, even if you know it is coming. Not to mention, manually processing data is extremely inefficient. Financial dashboards can collect data as it comes in and process it at the click of a button.
- Data consolidation. Have you ever had a co-worker who kept files on their desktop? Did they go on vacation without giving you the information you needed? We have all been there. With a financial dashboard, all your information is stored in a centralized location where you can always access it.
- Interface with other services. When you hire someone at your company, you are probably hiring a team player. You should pick your software the same way. Our reporting software can interface with any of your favorite ERPs.
- Instant updates. With data collection automated, data being stored in a central location, and ERP interface, a new financial report can be created instantly. Everything you need is just one click away.
Financial reporting solutions can streamline a lot of outdated processes that your company may have in place. This can save you time, money, and a lot of frustration. Take a look at our reporting solutions for Finance to see how we can help your company grow. Then, use the growth metrics listed below to quantify that growth.
Would you rather invest in a growing company or one that is stagnant? These are two commonly used growth metrics you can use to evaluate your company’s past performance:
- Average Annual Growth Rate (AAGR) – If you have an investment that spans over many years, you would want to know what kind of return you are getting. You might also want to know what that return looked like on an annual basis. This financial KPI calculates the average annual return of an investment, asset, or any kind other kind of growth that a company would be interested in measuring.AAGR = (Growth Rate1 + Growth Rate2 + … + Growth Raten) / nWhere n is the number of years over which the growth occurred.
- Compound Average Growth Rate (CAGR) – Everyone knows that you would rather be earning compound interest rather than simple interest in your bank account. The power of compounding should not be underestimated. As such, you should know how to calculate what your CAGR is.Where n is the number of years over which the growth occurred.
Measuring growth is straightforward. But what growth are you trying to measure? Revenue? Net Profits? New customers? Or maybe you should be using these growth metrics on some of the more non-traditional financial KPIs that exist.
When Traditional Financial Key Performance Indicators Aren’t Enough
Financial reporting has been around for a long time. In the United States, accounting practices have been set out by the American Institute of Certified Public Accountants (AICPA) since 1939. Over time, these practices have been updated and evolved into what we know as GAAP. Almost all the data required to calculate the top financial KPIs can be found on the balance sheet, cash flow statement, or income statement. However, with technology progressing faster and faster, and companies with negative cash flows going public, some of the traditional metrics aren’t able to capture the future potential of a company. Here are four non-traditional financial KPIs to keep in mind for 2020:
- Number of iPhones Sold – This isn’t what you are thinking. It isn’t just another “units sold” performance metric. Well, maybe it is. But the implications are different. In a traditional “units sold” analysis, you would be calculating the profit on each unit. However, with Apple, this represented something different. Growth. And not just sales growth, the growth of an ecosystem.
Statistically, once someone has bought an iPhone, they are more inclined to purchase other Apple products due to how easily all the products interact with each other, whether it be a Mac, iPad, Apple Watch, AirPods or an Apple TV. The revenue streams don’t stop there either. iPhone users are likely to sign up for Apple subscription services (Apple music, cloud storage, etc.), and all phone apps on the App Store are obligated to pay Apple 40 percent in commissions. Understandably, a lot of financial analysts were upset when Apple stopped reporting the number of iPhones sold, and only gave iPhone revenue data.
- Number of Monthly Active Users – This might seem strange as a financial metric, as it doesn’t explicitly give any financial information. However, when a company is not yet making money, it is often hard to gauge its potential to make money. This was the case for many social media companies in their infancy. Social media is often considered an ecosystem. The larger an ecosystem grows, the more potential there is for monetization (generally in the form of advertising revenue). As such, this financial performance indicator was widely used on social media companies like Facebook, Twitter, and Snapchat when they were working their way up to profitability.
- Average Revenue Per User – This is another financial key performance indicator that is typically used in the technology sector by companies that provide services in communications, social media, and networking. Historically, it was used by companies that provided subscription services to determine how much revenue would increase by adding new subscribers. Now, it has extended its reach over to the more established social media companies that are turning a profit. This provides investors with a way to quantify the revenue in proportion to the number of monthly active users. Companies like Facebook have also started reporting ARPU on different business segments, giving investors insight into how well Facebook is able to monetize its acquisitions.
Average Revenue Per User = Total Revenue / # of Subscribers (or active users)
- Number of New Subscribers – This financial KPI is a pretty hot metric for start-ups that offer a subscription service as their primary means of revenue. It is particularly important for companies like Netflix and Spotify, who are spending large amounts of capital trying to expand their market share and have yet to achieve profitability.
You have successfully navigated your way through a highly intensive crash course on the top 36 finance KPIs and metrics for your reporting in 2020. You should now have the foundation required to create new KPIs, assess financial metrics, and streamline your reporting with financial KPI software.
Still have questions? Our reporting experts at insightsoftware will be more than happy to answer any lingering questions you may have about financial reporting solutions or financial KPIs.