Ebook: EFP Latest 2022 Financial KPIs

Ebook: EFP Latest 2022 Financial KPIs

Latest 2022 FINANCIAL KPIs for the Finance Department

A basic knowledge of KPIs to measure financial performance can help you make better decisions and increase your job prospects, even if you don’t come from a financial background. You’ll be able to offer more value to your workday if you know how your company evaluates financial performance. For the uninitiated, the world of finance can be scary. Here is a list of the most important financial measures managers should know to become more comfortable discussing financial matters. Financial KPIs or metrics used to track, evaluate, and assess a company’s financial health are known as financial KPIs (key performance indicators). Profitability, liquidity, solvency, efficiency and value are just a few of the financial KPIs that fall under these categories. You can get a better sense of how the business is doing financially if you grasp these measures. It is possible to use this information to the departmental or team objectives and significantly contribute to crucial strategic goals. These measurements and KPIs should be made available to management within and distributed via email updates, dashboards, or reports weekly or monthly. If the indicators aren’t readily available, you can still get a sense of them by analyzing financial statements. Managers and other key stakeholders within a business should be aware of the measures indicated below, which are often contained in the financial statements stated above.

EFP | Latest 2022 FINANCIAL KPIs for the Finance Department

Gross Profit Margin

After deducting the cost of products sold, the gross profit margin is the remaining revenue. There are no operating expenditures, interest, or taxes included in the price of goods sold. GPM measures profitability only for a product or item line without considering overhead costs.

(Revenue - Cost of Sales) / Revenue * 100 = Gross Profit Margin.

Net Profit Margin

When all costs of goods sold, operational expenses, interest and taxes are taken into account, the net profit margin is the proportion of revenue and other income left after removing these costs. Net profit margin is a more comprehensive indicator of a company’s overall profitability than gross profit margin since it considers all of the company’s costs, not just the cost of products sold.

To calculate net profit margin, multiply net income by 100.

EFP | Latest 2022 FINANCIAL KPIs for the Finance Department

Working capital

To put it another way, working capital is a measure of a company’s available operating liquidity, which may be utilized to fund day-to-to-day activities. It can refer to readily available funds. To figure out your company’s Working Capital, subtract its liabilities from its current assets. Financial assets which include cash and accounts receivable are all part of this KPI equation: short-term investments, accumulated expenses, and loans. You can use this KPI to get a sense of your company’s financial health by determining how much of your assets can be used to cover short-term commitments.

Current Ratio

A company’s ability to meet its financial obligations on time and maintain a credit rating necessary for growth and expansion can be assessed using the Current Ratio KPI, which divides total assets by liabilities. This KPI is similar to the Working Capital KPI discussed above, which subtracts liabilities from assets. Using the current ratio, you may determine if a company has enough assets and liabilities to meet its short-term obligations—i.e., payments due within a year.

Current assets divided by current liabilities is the current ratio.

EFP | Latest 2022 FINANCIAL KPIs for the Finance Department

Quick Ratio

Your Quick Ratio KPI gauges how quickly your company can use its highly liquid assets to pay its urgent financial obligations. This is an indicator of your company’s financial strength and stability. As opposed to the Current Ratio, which includes inventories in its calculation, the Quick Ratio is considered a more conservative measure of a company’s financial health. “Acid Test” is the nickname given to this Quick Ratio KPI (after the nitric acid test used in detecting gold). In the same way, the Quick Ratio is a quick and straightforward approach to measuring your company’s financial health. Using the Fast Ratio KPI is a wonderful way to gain a quick snapshot of the health of your organization.

Current Ratio

A company’s ability to meet its financial obligations on time and maintain a credit rating necessary for growth and expansion can be assessed using the Current Ratio KPI, which divides total assets by liabilities. This KPI is similar to the Working Capital KPI discussed above, which subtracts liabilities from assets. Using the current ratio, you may determine if a company has enough assets and liabilities to meet its short-term obligations—i.e., payments due within a year.

Current assets divided by current liabilities is the current ratio.

EFP | Latest 2022 FINANCIAL KPIs for the Finance Department

Return on Equity

Your ROE tells you whether or not your net income is in line with the size of your company by comparing it to its total wealth. If your company’s current net worth is less than its current net income, it will have a lower net worth than if its current net income is higher. Your company’s ROE ratio tells you both how profitable your company is and how efficient it manages its operations and finances. A rising or high ROE tells your investors that their money is being used to its full potential. Divide net profit by shareholders’ equity, and you get the return on equity, more commonly known as ROE. It tells investors how well the company can use equity investments to generate profits.

Inventory Turnover

Inventory turnover measures how many times the company’s whole inventory is sold in a given accounting period. It reveals if a company has an excessive list concerning its sales.

Starting inventory + Ending inventory divided by two equals inventory turnover.

EFP | Latest 2022 FINANCIAL KPIs for the Finance Department

Operational Cash Flow

Analyzing your operating cash flow is critical to knowing whether or not you can afford to pay for delivery and other regular operational costs. To determine whether or not your operations generate enough cash to fund future investments, this KPI is utilized in conjunction with the total amount of capital you currently have in use. Comparing your operating cash flow to your total capital employed provides you with a better understanding of your business’s financial health, allowing you to look beyond profits when making capital investment decisions. An operating cash flow is the amount of cash a company generates due to its operations. If this metric is positive, it indicates that funds are available for expanding operations; negative, further funding is required to maintain existing operations. When calculating the company’s networking capital, there are two ways to do so directly or indirectly.

Seasonality is a significant factor. If you work in a business influenced by seasonal fluctuations, this metric will help you separate the factors and view the figures as they are.

In terms of financial KPIs, there is no such thing as a “good” or “poor” score. To assess if your company’s financial performance is increasing or falling, metrics must be compared to previous years or competitors in the industry.

EFP | Latest 2022 FINANCIAL KPIs for the Finance Department

Debt to Equity Ratio

The debt-to-equity ratio measures a company’s ability to pay its debts compared to its equity. Suggests how well a company’s equity can cover its debt if it suffers a downturn in the economy, which is reflected in this ratio. Debt Equity is a ratio determined by taking a close look at your business’s total liabilities in contrast to your shareholders’ equity. It helps asses how well the business is funding its growth. The number indicates how profitable the business is and how much debt the company has accrued to become profitable. A high debt-to-equity ratio reveals a practice of paying for growth by accumulating debt. This KPI is crucial to businesses as it helps promote financial accountability.

Asset Returns

Divided by a company’s average assets, the return on assets (ROA) ratio is a measure of profitability equivalent to the return on equity (ROE). It’s a measure of the company’s ability to make the most of its given assets and resources to increase earnings.

Assume that net profit is divided by the sum of beginning and ending total assets divided by 2.

Many more financial KPIs can be tracked and monitored using FP&A software like Epicor Financial Planner. This helps you better understand how your organization performs and how your activities affect progress toward shared goals. The financial KPIs described above are an excellent place to start if you’re new to finance. All managers need to learn how these measurements influence their overall strategy.

EFP | Latest 2022 FINANCIAL KPIs for the Finance Department

Reporting and Consolidation using Epicor Financial Planner

Epicor Financial Planner addresses a wide range of issues, including >Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10

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