When you think of financial performance indicators, many important ones will come to mind. Gross and net profit margins, current ratio, leverage, quick ratio, debt-to-equity ratio, inventory turnover, return on equity, asset turnover, return on assets, and operating cash flow are some of the key performance indicators (KPIs). Some are very crucial for your managers to track. Some are essential for investors or financiers to know. But most of these may not be what you’d want everyone, including your employees outside the finance department, to know unless the numbers speak a story that boosts morale and brand value.
For example, liquidity and working capital are among the most important KPIs for your managers and investors. But if you are going through a challenging phase and your business has little liquidity or working capital left, most certainly, that’s not something you’d want everyone in your workplace to know. And that’s true for every KPI in your business because unless it benefits your organization, you shouldn’t make sensitive KPIs common knowledge in your workplace.
However, all the requisite KPIs should be revealed to all those tasked with shaping business strategy, those who make critical decisions based on the KPIs, and those assigned the responsibility of maintaining the financial health of the business enterprise. However, for such people, who are tracking scores of financial KPIs, it’s a matter of debate to decide which three KPIs are the most important. Moreover, it’ll also depend upon the business model. And the top three KPIs to track will also change according to which phase of a business cycle the organization is currently passing through.
Still, some specific ones stand out among the multitude of KPIs. The first, obviously, is sales and revenue. How much money your business earns through sales of products and services is the first performance indicator that everyone in your workplace should know about. And it’s not only annual sales. Given the type of business, even daily sales can be a factor in deciding strategy and gauging business health. The second KPI that’s most important is liquidity because it gives an idea of the ability of the business to continue operations and reveals the dearth or abundance of working capital.
If liquidity is strong, it will boost employees’ morale because they will be confident that their company is strong enough to withstand or absorb sudden shocks and losses. In choosing the third KPI, opinions vary between return on investment (ROI) and profitability, though both of them are equally important, directly connected, and closely linked. While everyone talks about ROI and seems to know what it indicates, for many businesses, the profitability, or what is left in hand after expenses are deducted from revenue, matters more for day-to-day operations. If your employees are aware of the abovementioned three KPIs, it’ll help them to discharge their responsibilities more confidently and with a much better perspective.