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Growing businesses are measured by several growth indicators that provide insight into their performance and development over time. These indicators are essential for understanding how a business is expanding, identifying areas for improvement, and making informed strategic decisions.
Key performance indicators (KPIs) display the operational and financial health of an organization and its sustainability in upcoming years to go.
Financial KPIs measure a company’s key business objective against its decided goals and targets. However, tracking metrics like revenue, expenses and income is a challenging task using excel spreadsheets; and it is becoming extremely important to have a software in check to measure and monitor these.
Oracle NetSuite supports KPIs and has a varied pre-configured one on its Analytics dashboard. We can further, create KPIs based on custom reports and saved searches to create KPIs as per the business needs.
Here are a few most needed Financial KPIs to look for a growing startup industry
6 Essential Financial KPIs for Startups
1. Gross Profit and Net Profit Margins
These ratios are a mirror to the actual profit earned by a business over a period of time.
Calculating these not only guarantees business having its expenses in check but also pinpoints to the most expensive expense to reduce them substantially.
Gross Profit = (Net Sales – COGS)/Net Sales *100
Net Profit = (Gross Profit/Revenue) * 100
2. Working Capital Ratio
Current ratio pictures the real assets available to pay off the liabilities in case of business shutdown. A ratio from 1.5-2 is considered safe. Anything below 1 is not a good sign.
Working Capital Ratio = Current Assets/Current Liabilities
3. Days Payable and Receivable Outstanding
These two financial KPIs show whether business is getting payments within decided due dates and whether business is paying suppliers with due time. Any lag in either of these shows a bad financial position of the company.
Days Sales Outstanding = Total Receivables/ Total Sales * No of Days
Days Purchases Outstanding = Total Payables/ COGS * No of Days
4. Cost per Unit
Yet another impactful analysis, cost per unit helps generate the exact cost one must recover while making sales. It helps set the profit percentage to overload on the cost.
Cost per unit = (Total fixed cost + Total variable cost)/Number of units produced
5. Cash Conversion Cycle
This again shows how much time is required by the business to convert its sales into real cash to be deposited in the bank.
This monitors the actual cash flow and identifies the red flags in this process.
Cash Conversion Cycle = Days Sales Outstanding + Days of inventory outstanding – Days payable outstanding
6. Sell Through Rate
When it comes to Inventory Management, Sell Through Rate shows Inventory sold versus inventory produced. This exactly helps in to stop wastage of funds and raw material and generate only required inventory as per the demand season.
Sell Through rate = (Number of Units sold / Number of units produced) *100
Takeaways
Thus, all these ratios judge and guide a business to sail through. Generating effective reports and saved searches will further help NetSuite generate formulas and KPI graphs and reports based on custom requirements and data put in and present it on NetSuite Dashboards.
