As a small business owner, you may be juggling many different tasks and responsibilities. You are likely the CEO, CFO, HR manager, IT guru, and more. It can be difficult to keep track of all the financial data that is necessary for your company to operate successfully. In this blog post we will cover 6 key performance indicators (KPIs) that every business should know:
1- Net Income Margin
Net income margin is one of the top KPIs you should know in your business. Net income margin is calculated by taking net profit and dividing it by revenue. Net profit can be found on the income statement, while revenue appears in the cash flow report.
2- Gross Profit Margin
I can’t stress this enough – you need to know your gross profit margin in order to run your business well! Gross profit margin is calculated by taking gross profit and dividing it by revenue. Gross profit can be found on the income statement, while revenue appears in the cash flow report.
The higher your margins are, the more you have to work with for other expenses like marketing or salaries!
Gross Profit Margin = Net Income / Revenue
3- EBITDA margin
EBITDA is important (and fun to say). It stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. Basically, it’s a net profit with all the expenses subtracted out that we don’t have control over.
This metric is important because it tells you how profitable a company’s operations are, before interest or taxes to take into account external factors like economic conditions!
4- Return on Assets (ROA)
Your ROA will give you an overview of how profitable your company is and its ability to pay off debts.
ROA = Net Profit / Assets
It’s calculated by taking the net profit for a year, then dividing it by total assets in that year.
5 – Debt to Equity Ratio
If your company has a high debt to equity ratio, it means that your company owes more money than it’s worth.
But if you have a low debt to equity ratio then your company should be in the clear!
The Debt-to-Equity Ratio is calculated by dividing total liabilities (debt) by shareholders’ equity.
6 – Current Ratio
There is a difference between short-term liabilities and long-term liabilities. The current ratio helps you estimate whether your company’s current liabilities are greater than or less than its short-term and long-term assets.
Current Ratio = Current Assets / Current Liabilities
An ideal ratio would be a high number, which is usually considered to be at least two times the amount of total debt.
In conclusion, you need to keep your eye on these 6 Financial KPIs because they are all important factors in the success of your business. If you’re looking to grow your business don’t miss out on the low-hanging fruit that you can find when checking your numbers!
Don’t know what to do with these numbers? No worries we can help with what to do and how to find them.