Business
7 KPIs Every CFO Needs to Track
7 KPIs Every CFO Needs to Track
Published by Jessica Weisman-Pitts
Posted on February 4, 2022
Global Banking and Finance Review
Company
Published by Jessica Weisman-Pitts
Posted on February 4, 2022
Tracking the right CFO KPIs is crucial to the success and health of every business. They help you rate your business’s performance to make crucial execution adjustments to meet your strategic objectives. Understanding and tracking effective key performance indicators help you attain results faster. It also enables you to measure long-term and business strategy progress over time.
When you measure the correct KPIs, you remain on track and make proper adjustments to help you achieve the desired business results. Tracking the same KPIs over time allows you to identify the patterns in your numbers, enhancing forecasting. Here are the KPIs every CFO needs to track.
Accounts receivable turnover is one of the most important KPIs for CFOs. Tracking the right accounts receivable turnover helps you determine the number of times you can collect on your outstanding accounts in one accounting period. It involves tracking days of sales outstanding, turnover ratio, bad debts to sales ratio, credit percentage available, and more.
Accounts receivable turnover measures the effectiveness of your company to extend credit to its customers and collect payment. It shows you how you’re using the existing assets. A high turnover indicates that you aren’t losing funds on credit sales and signifies that your business is more liquid.
The quick ratio KPI enables finance managers to give you a quick assessment of your company’s overall wealth. The quick ratio metric measures your company’s ability to immediately utilize extremely liquid assets to meet your financial obligations. It can also measure your business’s financial flexibility and wealth to determine its ability to satisfy short-term liabilities.
To calculate the working capital Key Performance Metric, subtract current liabilities including accounts payable, loans, and accrued expenses from current assets such as cash at hand, accounts receivables, and short-term investments. By evaluating the assets that help you satisfy short-term financial obligations, you get a clear picture of your company’s financial health.
The return on equity financial KPI measures your business’s net income against its net worth. It helps you determine whether net income is sufficient for your company’s size by comparing it against your business’s overall wealth. Return on equity tracks your business’s profitability and efficiency. A high or increasing return on equity proves to shareholders that you’re optimally utilizing their investments for business growth.
When assessing the operating cash flow KPI, comparing it to the total capital employed helps determine whether your business operations generate sufficient funds to sustain your capital investments. This allows you to see far deeper than just looking at your profits, making the operating cash flow metric an essential KPI for finance managers.
The debt-to-equity ratio helps you understand how your business funds its growth and if you’re utilizing shareholder investments effectively. To calculate this KPI, take its total liabilities against its net worth. This shows shareholders the debt you’ve accumulated when trying to make profits. The higher the debt-equity ratio, the higher the debt to fuel business growth.
Accounts payable turnover indicates how faster you’re paying off your suppliers. A decline in accounts payable suggests that your company takes a lot of time to pay off suppliers. To calculate this KPI, take the costs of sale at a specific period against mean accounts payable at the same period.
Financial performance metrics are crucial to maintaining a company’s sound financial health. Consider the above KPIs that every CFO needs to track for business growth and success.
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Tracking the right CFO KPIs is crucial to the success and health of every business. They help you rate your business’s performance to make crucial execution adjustments to meet your strategic objectives. Understanding and tracking effective key performance indicators help you attain results faster. It also enables you to measure long-term and business strategy progress over time.
When you measure the correct KPIs, you remain on track and make proper adjustments to help you achieve the desired business results. Tracking the same KPIs over time allows you to identify the patterns in your numbers, enhancing forecasting. Here are the KPIs every CFO needs to track.
Accounts receivable turnover is one of the most important KPIs for CFOs. Tracking the right accounts receivable turnover helps you determine the number of times you can collect on your outstanding accounts in one accounting period. It involves tracking days of sales outstanding, turnover ratio, bad debts to sales ratio, credit percentage available, and more.
Accounts receivable turnover measures the effectiveness of your company to extend credit to its customers and collect payment. It shows you how you’re using the existing assets. A high turnover indicates that you aren’t losing funds on credit sales and signifies that your business is more liquid.
The quick ratio KPI enables finance managers to give you a quick assessment of your company’s overall wealth. The quick ratio metric measures your company’s ability to immediately utilize extremely liquid assets to meet your financial obligations. It can also measure your business’s financial flexibility and wealth to determine its ability to satisfy short-term liabilities.
To calculate the working capital Key Performance Metric, subtract current liabilities including accounts payable, loans, and accrued expenses from current assets such as cash at hand, accounts receivables, and short-term investments. By evaluating the assets that help you satisfy short-term financial obligations, you get a clear picture of your company’s financial health.
The return on equity financial KPI measures your business’s net income against its net worth. It helps you determine whether net income is sufficient for your company’s size by comparing it against your business’s overall wealth. Return on equity tracks your business’s profitability and efficiency. A high or increasing return on equity proves to shareholders that you’re optimally utilizing their investments for business growth.
When assessing the operating cash flow KPI, comparing it to the total capital employed helps determine whether your business operations generate sufficient funds to sustain your capital investments. This allows you to see far deeper than just looking at your profits, making the operating cash flow metric an essential KPI for finance managers.
The debt-to-equity ratio helps you understand how your business funds its growth and if you’re utilizing shareholder investments effectively. To calculate this KPI, take its total liabilities against its net worth. This shows shareholders the debt you’ve accumulated when trying to make profits. The higher the debt-equity ratio, the higher the debt to fuel business growth.
Accounts payable turnover indicates how faster you’re paying off your suppliers. A decline in accounts payable suggests that your company takes a lot of time to pay off suppliers. To calculate this KPI, take the costs of sale at a specific period against mean accounts payable at the same period.
Financial performance metrics are crucial to maintaining a company’s sound financial health. Consider the above KPIs that every CFO needs to track for business growth and success.
This is a Sponsored Feature
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