Tracking key performance indicators (KPIs) will tell you if your business is on track for success, or veering off course and in need of correction.
But when it comes to your financial performance, what metrics should you monitor? Here are the four financial metrics every company should keep a close eye on.
Doing that, can also help you spot revenue concentration, where most of your sales are generated from one product or one customer, which can leave your business vulnerable.
When you’re examining your liquidity, it is also useful to assess your cash conversion cycle. How long does it take you to get a return after you've made an investment? If you put money into buying equipment, developing a new product, or taking on a project, how long does it take before you can collect money back? Over time, you want to reduce your cash conversion cycle as much as possible and generate better liquidity.
Navigating Your Business with the Right Financial Metrics
Regardless of your business model or industry, your company needs to monitor financial metrics.
Remember: Using the right indicators will help you deliver the right results. You may add additional financial KPIs, but these four metrics (revenue, profitability, liquidity, and ROI) should act as the cornerstone of your financial strategy. And financial metrics alone won't give you a comprehensive picture of your business, which means you will also need to find KPIs for other key areas of your business, such as customers, operations, and employees.
Want to learn more about key performance indicators, and what you should be monitoring in your business to make sure you’re on track to meet your goals? On my website, you can find lots of articles on the most important KPIs across all business units, as well as the KPI library to help you find the right measures for your company.
Where to go from here
If you would like to know more about measuring HR effectiveness, check out my articles on:
Or browse the KPI Library to find the metrics that matter most to you.
Bernard Marr is a world-renowned futurist, influencer and thought leader in the field of business and technology. He is the author of 18 best-selling books, writes a regular column for Forbes and advises and coaches many of the world’s best-known organisations. He has 2 million social media followers and was ranked by LinkedIn as one of the top 5 business influencers in the world and the No 1 influencer in the UK.