

When we want to create a business, we pay attention to costs - particularly at the start of the activity, when the budget is limited.
Where Thought Leaders go for Growth
Key performance indicators, or KPIs, are financial data metrics used to manage and help your business, assess its financial health, its potential for growth, and detect any issues before they become a problem for your business.
But what are these indicators or financial ratios, and how do you calculate them?
We came up with a list of finance thirteen KPIs that you and your business should really monitor.
Performance indicators are found on either:
Studying the entirety of indicators allows you to get a pretty comprehensive overlook of the financial situation of your business at a specific time, and to evaluate:
Financial performance indicators are therefore important:
While there might be a ton of KPIs out there, the majority of them tend to fall under five main categories:
There are countless KPIs out there, but here’s thirteen to look out for:
Working capital requirement is a necessary indicator for businesses to:
Net working capital is the safety cash reserve to meet working capital requirements.
This is the excess money after funding of:
NWC Formula = stable resources – long-term employees
Net cash is the money your business has that can be used immediately, i.e., cash on hand. This also reflects a short-term financial balance.
Therefore, net cash is the difference between what you have on hand and your debt. But, if you want to be a bit more technical, we can use two previous indicators to calculate net cash:
Net cash= NWC-WCR
The breakeven point is the amount a business has to earn in order to cover all of its costs, including fixed and variable, and start turning a profit.
It gives an idea of how viable the business is, even before starting.
Breakeven point formula = Fixed costs/((Revenue – variable costs)/Revenue)
Sales margin is the profit generated by businesses, meaning the difference between the sales price and the price of goods and services.
It allows businesses to estimate future revenue streams, but also to change their sales strategy, notably in terms of prices.
Sales margin formula = Revenue (excluding tax) – Costs (excluding tax)
EBITDA corresponds to:
EBITDA, as the name indicates, is therefore the financial result of the business, before interest, taxes, depreciation, and amortization.
EBITDA = Net Income + Taxes + Interest Expenses + Depreciation
It can also be used to calculate:
Financing capacity is the surplus generated by the business, that can later be used.
It’s the result of net cash and “non-cash” expenses, such as:
Formula: EBITDA + cashable items – cashable expenses
Interim management balances represent several financial indicators, allowing you to understand your business’s financial results.
Among those include:
But also some we didn’t cover:
The quick ratio is a performance indicator of a company’s immediate liquidity position, and also whether a company can meet their short-term obligations. It specifically measures near-cash assets, the ones that can be converted into cash quickly, and whether a company can pay off its liabilities without having to sell its assets.
The higher the ratio, the better the financial position of a company is, the lower, the worse and harder it will be for a company to meet its financial obligations.
Formula: QR = CE + MS + AR/CL
Where:
QR = Quick Ratio
CE = Cash & Equivalents
MS = Marketable Securities
AR = Accounts receivable
CL = Current liabilities
Note-Quick ratio is also called the “acid test ratio”.
The debt-to-equity ratio compares the number of liabilities, or debt, to the amount of shareholder equity. It’s specifically used to measure a company’s financial leverage or the amount of debt used to intensify returns from a project or investment. In short, it shows how much a company is funding its daily operations using debt, compared to traditional funds owned by the company.
Debt-to-equity can be used by investors to gauge whether investing in a company would be risky or not. However, different industries have different standards of debt levels, meaning that comparing different companies from different industries may be misleading or unreliable.
The formula for the debt-to-equity ratio is pretty self-explanatory, it is:
Total Liabilities/Total Shareholders’ Equity
Note: This ratio can also be expressed as a percentage.
ROE, or return on equity, is an indicator used to measure a company’s profitability. The formula is pretty straightforward, it’s:
Net income/Shareholders’ equity
Like the previous indicator, debt-to-equity, investors use this as a way of measuring a potential investment. However, in this case, this is used to measure how much return a shareholder gets with a specific stock.
Inventory turnover measures the number of times a company sells and replaces its inventory during a given period. Generally speaking, most companies want to have a high inventory turnover, this means that they’re selling and replacing their inventory fairly quickly, rather than the opposite which means weak sales.
Inventory turnover’s formula is the following:
Net sales/Average inventory at selling price
Current accounts receivable is used to calculate the portion of the company’s customers that pay on time. It’s calculated by subtracting past due accounts receivables from the total amount of accounts receivables, then dividing that by the total amount of account receivables. A higher ratio usually indicates fewer past due invoices, and a lower ratio usually means the company in question is having a hard time getting its customers to pay.
(Total Accounts Receivables – Past due accounts receivables)/ Total Accounts Receivables
While most of the indicators we just listed are applicable to the majority of businesses, some of them, like inventory turnover, for example, are specific to companies that deal with manufacturing.
Show in the form of a dashboard, there are two main ways you can study KPIs:
You should also know that having an adapted software program can make reading and comparing these indicators a lot easier.
A tip from us: think about combing financial indicators with non-financial indicators, like new client turnover, to really get an overall view and long-term vision of your business’s current situation.