CFOs know they need to track their company’s financial performance in up-to-the-minute detail. The challenge is figuring out what to focus on. Given how much data executives now have at their disposal, it’s easy to lose the forest through the trees. Instead of falling victim to analysis paralysis, determine which metrics reveal the most about your performance and focus on those exclusively. Here are ten we recommend you include.
- Working Capital: The financial assets that are immediately available such as cash, accounts receivable, and short-term assets. The amount of working capital you have on hand determines whether you can meet short-term financial obligations.
- Current Ratio: The ratio of assets to liabilities. The current ratio indicates whether your company can pay bills in a timely manner and remain financially solvent.
- Operating Cash Flow: The amount of money that comes into the company on a daily basis. Tracking operating cash flow is important for gauging whether you can continue to invest in projects or justify taking on new expenses.
- Quick Ratio: Another ratio of assets to liabilities, this time with inventory excluded from the asset column. Inventory takes time to convert to cash, so by omitting it from the ratio, you get a more immediate look at financial performance. This metric is also known as the Acid Test.
- Payroll Headcount: The total number of full-time and part-time employees in the organization. Payroll headcount helps illustrate how staff numbers and labor costs affect overall financial performance.
- Debt to Equity Ratio: The ratio of total liabilities to shareholder equity. This metric is important to executives and investors alike because it reveals how much debt a company has taken on to acquire its assets.
- Return on Equity: The ratio of net income to shareholder equity. This metric is essentially the inverse of the previous one; it indicates how much revenue you’re able to generate for investors.
- Accounts Payable Turnover: The ratio of total purchases to average purchases over a set period. Accounts payable turnover reveals how much you spend on certain vendors and how quickly you pay them.
- Accounts Receivable Turnover: The ratio of total sales-driven revenue to average accounts receivable. This ratio reveals how effective your company is at collecting payments.
- Inventory Turnover: The ratio of sales to average inventory. It indicates how quickly you’re able to sell your stock.
It’s important to track the right metrics, but it’s equally important to track them effectively. If it takes too long to find and compile the data used in KPIs, for example, CFOs could be looking at performance figures that haven’t been relevant for months. Avoid that fate and optimize how you use metrics; download our ebook: Guide to the Right KPIs for the Modern CFO.