Every commercial organization exists to make a profit, and the financial health of an organization is essential to its success. Financial health is not a singular parameter. It is made up of numerous variables, which can be measured and tracked using KPIs.
What are KPIs?
Key Performance Indicators (KPIs) are key metrics that help you measure performance of various aspects of the organization that determine its success. KPIs are based on various data and are usually measured by establishing the relationship between different data points.
Since KPIs are always based on comparison, they are most likely a ratio derived through comparison of different data. KPIs, when measured at any given time, provide the current snapshot of the organization. By constantly measuring KPIs for a given period of time, it is possible to track performance throughout that time period. Every organization is different, and so, every organization should determine its important KPIs that matter based on its business priorities, since measuring the right KPIs is crucial to achieving high performance and success.
What are Financial KPIs?
Financial KPIs are key metrics that can help measure financial performance of the organization at-a-glance. Financial KPIs may include metrics related to expenses, debt, investments, assets and liabilities, profits, revenues and other important financial outcomes of the organization. Tracking all the important financial KPIs gives insights about the financial health of the organization and helps the leadership team make major business-critical decisions in a timely manner without having to micro-manage smaller issues.
Types of Financial KPIs
There are five categories of financial KPIs. They are:
- Profitability KPIs
- Liquidity KPIs
- Efficiency KPIs
- Valuation KPIs
- Leverage KPIs
These categories encompass numerous financial KPIs that measure performance of your business. However, choosing the best KPIs for your business requires a deeper understanding of different financial KPIs and the ability to track each metric and determine whether they matter to your business strategy. Only then you can prioritize your top KPIs that help you produce the best outcomes for the organization.
Important KPIs and metrics to track financial performance
Following are the important KPIs that you need to know about, in order to maintain the financial health of your organization.
1. Sharpe Ratio
The term Sharpe ratio denotes a Return or Risk measured amount provided by the annual average of the monthly returns, that deducts the yield of an investment without risk, provided it is divided by the standard deviation of fund returns.
2. Asset Coverage Ratio
Now, if a company isn’t profitable, the management might require selling part of the firm’s assets to pay debt investors. In order to get a general sense of the worth of the assets, one must use the asset coverage ratio formula.
Concurrently, financial analysts utilize this ratio in an attempt to evaluate a company’s financial stability, capital management, and the approximate risk level of investing in the company.
3. Average Time to Find a Hire
The hiring process can sometimes last between a couple of days or even a couple of months at times. Effectively, the industry in which your firm operates will widely influence this metric, as there are particular specifications for every industry. That being said, the time to find a hire represents the time it takes for your recruiting team to find the perfect candidate for a position.
4. Cost Per Hire
Cost per hire refers to the amount of money your company spends to hire recruiting talent. The total cost spent to recruit a talent covers the overall cost of welcoming the new employee to the company that includes the expense of the complete recruitment process, cost of travel and benefits.
5. Knowledge achieved With Training
Each entrepreneur is concerned about the prosperity of their business. And a business’ prosperity is naturally linked with the productivity and preparation level of its employees. This is why it makes sense, in the competitive age in which we live, to invest in training programs.
6. Percentage of Employees Trained in Company Culture
You can determine if your employees are well trained and are understanding the company-wide organizational culture well to work effectively, by calculating the percentage of employees that are trained in company culture.
7. Return on Assets
The return on total assets can show if the managing team is effective at earning money from the company’s assets in a certain amount of time. The company assets are used to generate money. But to buy assets, you need money. So, this ratio is again used to show how much money you need to buy assets. Basically, it is similar to a return on investment.
8. Retention Ratio
The retention ratio or plow back ratio is the calculation that shows you exactly what percentage of your net income is retained for the business and what goes to pay the shareholders as dividends. It may seem a little complicated, but if you know what the payout ratio is, you’re on the right track. Basically, the retention ratio is the opposite of the payout ratio. The latter is the percentage of earnings paid to the shareholders.
9. Residual Income
Residual income refers to the amount of money that is left after all the expenses have been paid for a period. The residual income can be on a personal scale or on a business scale. Both of them have different formulas. To better understand the residual income calculation, this is also named discretionary income.
10. Receivables Turnover Ratio
The accounts receivable turnover represents an efficiency ratio. Thus, its main purpose is to assess the number of times a firm can turn its accounts receivables into cash over a specific timeframe. That is to say, this ratio calculates how many times a firm is likely to collect its average accounts receivable over a given year.
11. R-Squared (R2)
Also known as the coefficient of determination, r-squared is the statistical measurement that comes from the correlation made between the performance of a certain investment and a specific benchmark index. Basically, r-squared shows what portfolio performance or degree of stock can be attributed to a certain benchmark index.
12. Quick Ratio – Acid Test
The quick ratio, also known as acid test ratio, is used to measure a company’s ability to pay off its current liabilities when these come due – but only with the company’s quick assets.
13. Profit Margin Ratio
In order to measure the amount of net income earned by a company with each dollar sales that are generated we use the profit margin ratio. Also known as gross profit ratio or the return of sales ratio, this is determined by comparing the net income with the net sales of a certain company. Basically, the profit margin ratio helps us see the percentage of sales left after all of the company’s expenses are paid.
14. Price to Sales
The price to sales ratio is used to measure the value that the investors put on a certain company for each dollar of revenue that’s being generated by the said company. This is done by comparing the stock price with the total revenue of the business.
The price to sales ratio is commonly used, as it shows the value of a company, in relation to one of the most common and easiest to understand metrics, namely, the revenue.
15. Price to Earnings P/E Ratio
Price to earnings ratio is a prospect ratio that calculates a stock’s market value. It does that by comparing the market price per share with the earnings per share. With that in mind, this ratio indicates what the market is likely to pay for a stock, considering the current earnings.
16. Price to Cash Flow
The price of a company is compared to the underlying cash flow using the Price to Cash Flow profitability ratio, also abbreviated as P/CF. Basically, this ratio is used to determine how much a certain company is worth based on the cash flow it is able to generate.
17. Price to Book Ratio
The price to book ratio is renowned as an important financial valuation tool. Essentially, it is utilized in an attempt to appraise if a stock of a firm is undervalued or overvalued. It does that by comparing the net assets of the firm with the price of the existing shares. Fundamentally, it is supposed to differentiate between the total share price of a firm and the book value.
18. Present Value (PV)
The present value is referred to as the discounted value – and it is a widely used financial formula. So, what is it used for? Expressly, it estimates the amount of money that ought to be invested today, to equal the payment received on a specific future date. This concept is connected to the time value principle which assesses that one dollar today is, usually, worth more than one dollar tomorrow. This is due to three primary reasons, namely interest, opportunity costs and inflation.
19. Preferred Dividend Coverage Ratio
The preferred dividend coverage ratio assesses a corporation’s financial capability of paying the dividends owed to shareholders, depending on its net income. Investors utilize it because it points out how well a company is doing, by comparing preferred dividends and profits. It’s as simple as this: if a company generates enough profits in order to pay the dividends, then it is profitable.
20. PEG Ratio
The PEG ratio stands for price earnings to growth, being regarded as an investment calculation that assesses the value of a stock, considering the current earnings and the potential anticipated growth of the company.
To that end, investors utilize this ratio in order to calculate if a stock is overpriced or underpriced, by factoring in the current earnings in link with the rate of growth of a company.
21. Payback Period
The payback period is a financial capital budgeting method that estimates the amount of time needed for an investment to generate cash flow and replace the cost of the investment.
So, it’s the amount of time it takes for an investment to get enough cash in order to pay for itself. It’s relevant to management, as it can help analyze the risks of different investments.
22. Accounts Payable Turnover Ratio
The accounts payable turnover ratio is a liquidity ratio that indicates the ability of a company to repay its accounts payable. The repayment is done by comparing net credit purchases to the average accounts payable during a period. Basically, the accounts payable ratio shows how many times a firm can repay its average accounts payable balance over the year.
23. Operating Leverage
Operating leverage is a financial efficiency ratio that is used to calculate the percentage of total costs that are made up of fixed costs and variable costs. Basically, its aim is to find out how well a company generates income by using its fixed costs.
24. Operating Income
Operating income is also called EBIT (Earnings before interest and taxes). Basically, it’s a profitability formula that estimates the profits of a firm derived from operations. Therefore, it calculates how much money a firm makes from the main business activities without including other income expenses not related to the main activities.
25. Operating Cash Flow
Operating cash flow is an efficiency calculation that shows the amount of cash generated by a company’s regular operating activities during a certain time. Therefore, it shows the cash flow generated from the business operations without concern to any secondary source of revenue such as investments or interest.
26. Net Operating Profit After Tax
Net Operating Profit after Tax (NOPAT) is a measurement of profitability that estimates the theoretical amount of money a firm could deliver to the shareholders if it had no debt.
So, this is the amount of money a firm obtains from its operations after taxes without regard to interest payments. If the firm didn’t have obligations on the books, it would have the ability to distribute the entire amount of cash to its shareholders once the year ends.
27. Net Working Capital
The net working capital is a calculation that estimates the ability of a company to pay off its current liabilities with existent assets. It’s a very important measurement and it’s used by general creditors, vendors, and management. Through the equation, they can find out about the management’s ability to efficiently use its assets, as well as the company’s short-term liquidity.
28. Net Profit Margin
The net profit margin is used to find out whether a business is poorly managed and to see future profitability. By comparing the total sales and the net income, the management can determine how much of the revenue goes towards expenses and how much remains for the company’s future investments.
29. Net Present Value (NPV)
The net present value is used to calculate the difference between the cash inflows and outflows of a potential investment or project. It evaluates the profit generated by an investment in comparison with the cost set for the time value of money. It shows that the value of a dollar could change from day to day.
30. Net Operating Income
Net operating income is a profitability formula that is used to determine the financial health and profit of a commercial property by deducting the operating expenses from the net income. In short, you can measure the profit of a property after all the expenses have been dealt with, by calculating this metric.
31. Net Interest Margin
The net interest margin ratio is a term that shows you how well you invest your money and if the decision is good. It mainly determines the profit of a company when it comes to its investments. This ratio is also used by banks and investment companies. The latter make use of it to see whether the manager has made good decisions in investing the money into assets.
A good percentage means that the company is drawing a profit from the investment. A negative percentage shows exactly the opposite, as the investment earnings went past the interest expenses.
32. Net Income
Net income also known as bottom line or net profit- is the amount of money that remains after you pay all debt and expenses within a company. This is the money you have available to invest in other projects or assets.
33. Net Fixed Assets
Net fixed assets are crucial for companies. Every company has its own assets – from computers to offices, lands, and buildings. They all came at a price sometimes, but now, they may be cheaper or much more expensive, depending on their value. A lower ratio could mean that your assets are out of date, or they must be replaced or serviced.
34. Return on Capital Employed
Capital employed is the amount of capital used for making profits. Return on capital employed or ratio means the amount of money that you gain from the capital employed. Add the fixed assets to the working capital and you will get the capital employed. To calculate the return on capital employed, you can divide the net operating profit to the employed capital.
35. Long Term Debt to Assets
The long-term debt to total assets ratio of a business reveals the number of assets (in the form of a percentage) financed through long term debts. Basically, this ratio shows the overall financial status of a firm. A long-term debt refers to a debt longer than a year, while the short-term debt is less than a year.
36. Net Debt
Net debt calculation shows you the financial situation and health of your business. In order to implement a new product or service idea, companies need money. The money can be withdrawn from a bank, but that will put the company into a bigger debt. Net debt calculation shows you if you can take another debt without affecting your profit. If the result of the calculation shows a bigger ratio, then the company has more debts than current assets. If the ratio is smaller, then the company has enough resources to pay its debt faster.
37. Marginal Revenue
Marginal revenue is the additional revenue generated by increasing sales by one unit. In other words, if a company is lowering the price of a product to get better sales, the money resulted in that price lowering is called marginal revenue.
38. Margin of Safety
Margin of safety will give you the insight of what goes too much or too little. In other words, the calculation is basically a subtraction that indicates how much you need to produce to be above the break-even point and get profit. At the same time, the calculation will also reveal how much you will need to produce to break even.
Also, this acts as a buffer. There is always an amount of money that the company or department can lose before it starts winning money. With this buffer active, you can say that the company wins money. With the margin falling to zero, the department hits the break-even point. If the margin becomes negative, then the company will start losing money.
39. Loan to Value
Loan to value ratio is a risk assessment measurement. It is used to calculate the amount that has been loaned as a percentage of the collateral’s appraised value. Basically, it is a ratio that compares the purpose loan amount with the value of the property that’s being purchased – this determines the risk of the loan, namely, its risk of becoming upside-down.
40. Internal Rate of Return
The internal rate of return, also abbreviated as IRR, is used to identify which future projects or capital investments that will have an acceptable return – it is represented by a minimum discount rate. Basically, the internal rate is equal to the net present value of the future cash flows of a certain project, up until it reaches zero.
41. Interest Coverage Ratio
Interest coverage ratio determines whether a company is able to make interest payments on its debt or not in a timely manner. Also a liquidity ratio, it does not refer to a company’s ability to make principal payments on a debt – when compared to the debt service coverage ratio. When the interest coverage ratio is calculated, the investors and creditors can have a good look at the risk and profitability of a certain company.
42. Gross vs. Net
Gross and net usually refer to income.
For a business, gross income and gross profit are basically the same things. They use these to measure the profit the company is left with after the costs of goods sold are removed from the picture. However, selling and administrative expenses or taxes are not taken into account.
Net income shows the amount of revenue that is left after the costs of producing those revenues are subtracted from the total amount. Basically, for businesses to round up their net income, they have to take away their total expenses from their total revenues. This can be seen as pure profit, as it is the sum the company is left with after it has paid all of its expenses for a certain period of time.
43. Gross Profit
The profitability ratio called gross profit (also known as gross profit margin) is used to calculate the percentage of sales that are exceeding the costs of the sold goods. It shows if a company is using its labor and materials to produce certain products and sell them profitably – the higher the profit, the better the management.
The gross profit is what’s left for the company to use after the expenses that go into manufacturing are paid off. Usually, these expenses are direct labor and raw materials.
44. Goodwill to Assets
Goodwill to assets is used to compare the intangible assets of a company – like a customer list, brand name, and its unique position in the industry – to the number of the company’s total assets. The result shows if the goodwill is recorded properly within that company.
Companies use this measurement to value their current reputation in a monetary form. Goodwill can’t show a company’s success alone and it is, therefore, compared with the other assets of the company when determining its value.
45. Free Cash Flow
Usually abbreviated as FCF, the Free Cash Flow is an efficiency as well as a liquidity ratio. It calculates how much money a company is able to generate, compared to its costs of running and expansion. It denotes the money that a company produces in excess as profit, after it has paid its CAPEX and all of its operating expenses.
46. Fixed Charge Coverage Ratio
Whether a company is able to pay off its fixed charges or expenses with its own income or not – before income taxes and interests – is determined by the fixed charge coverage ratio. This financial ratio can be seen as an expanded version of the times interest coverage ratio or times interest earned ratio.
47. Fixed Asset Turnover Ratio
It’s an efficiency ratio that measures a firm’s return on their investment in plant, property, and equipment. It does so by comparing fixed assets with net sales. So, it estimates how efficient a company is in producing sales with its equipment and machines.
48. Return on Equity
Return on equity means that stakeholders that invest in a company should get the same amount back or more. Thus, this calculation is used by potential investors to see how the company uses their money to gain net income.
49. Expense Ratio
Expense ratio is an efficiency ratio, and it calculates the expenses for management as a percentage of total funds that are invested in a mutual fund. So, it estimates your investment’s percentage in the fund that goes into paying the management fees. It does so by comparing the total assets in the fund with the mutual fund management fees.
50. Return On Invested Capital
Return On Investing Capital (ROIC) is responsible for measuring the profitability of a company in relation to capital invested in the business. To become profitable and generate returns, a business will have to invest in a variety of assets. Whether we are defining “capital” and “assets” as the same thing is calculated by applying the ROIC.
51. Equity Ratio
An equity ratio calculates the number of assets financed by owners’ investments. Basically, it does so by comparing the total equity in the company to the total assets. The equity ratio is a solvency ratio or investment leverage.
This ratio features two important financial concepts for a sustainable and solvent business. One of them indicates the number of company assets that are owned purely by the investors. So, once the liabilities are all paid off, the remaining assets will end in the investors’ hands. The other one indicates how leveraged your firm is with debts.
52. Return on Investment
The return on investment (ROI) is a ratio that expresses the profitability of a company – the result being a percentage from the original costs. It tells you exactly how much you made in cash from the investment – as a percentage resulted from the purchase price.
ROI denotes how efficient every dollar is in creating a profit for the company. Investors do it to compare their performance with other investments – regardless of their sizes and types.
53. Return On Net Assets
Return On Net Assets (RONA) is a performance ratio that can compare the generated income from a company to fixed assets needed to get the income. With this ratio, you can measure a company’s efficiency as it generates the returns on its owned assets.
54. Equity Multiplier
Equity multiplier is a leverage ratio that measures the part of the company’s assets financed by equity. So, it shows the percentage of the assets that are owned or financed by shareholders.
Moreover, it can show the level of debt that was used by a company in order to acquire assets and maintain operations. If the multiplier is low, it shows that the company is not able to obtain debt from lenders, or that the use of debt is avoided by management. If the multiplier is high, it shows that a big portion of the company’s assets is financed by debt.
55. Return On Operating Assets
The return on operating assets (ROOA) calculates how much a company earns by investing in that operating asset. It measures a company’s ability to generate profit from the operational assets’ income. In other words, it shows how profitable your company is by only using your day to day resources.
56. Return On Retained Earnings
The amount of money you allocate for the growth of the company tells a lot about the growth potential of a company, as well as its efficiency. A higher return on retained earnings (RORE) would suggest that reinvesting in the business should be the next course.
A lower return, however, would say that you ought to distribute the profits among the shareholders – and pay out the dividends. This is generally the more appropriate option if you can’t get a good return from business growth.
57. Return on Sales
This financial ratio is used to show how efficient a company is at using its revenue in order to generate profits. Also called the operating profit margin, return on sales determines a certain company’s performance by showing what exact percentage of total company revenues are converted into company profits.
58. Sales to Admin Expenses
This efficiency ratio is used to measure if a company is efficient at managing its non-operating expenses in order to generate sales during the normal course of a company’s operations. It shows if a company is using its fixed cost in order to manage its operations smoothly in an efficient way.
59. Enterprise Value
The enterprise value (EV) is a direct representative of the economic value of a company – in other words, how much money someone would have to pay in order to buy it. When you are valuing stock, it is very important to consider this number. Market capitalization also doubles as a company’s price tag. However, unlike the enterprise value, the market capitalization completely ignores the debt.
60. Rule of 72
The rule of 72 is used to determine the number of years in which your money will double in value with compounding interest. Before making a certain investment, investors will use the rule of 72 in order to see the differences between two investments and, therefore, choose the best one to invest in – namely, the one that has higher chances of doubling his or her money, preferably in a shorter time period.
61. EBITDA
An acronym for Earnings before Interest, Taxes, Depreciation, and Amortization, EBITDA is very useful when it comes to understanding a company’s ability to generate profit. This will help you see its operating performance in comparison to other similar companies. By adding all the expenses back into the net income, accountants can see the operating cash flow of the business.
62. Sortino Ratio
The Sortino ratio is an alternative to the Sharpe ratio, as it isolates the effects volatility has on investments. This ratio is used to determine a portfolio’s performance adjusted for risk, by using the return below a minimally acceptable target.
Sortino ratio adjusts the return for the risk of an investment by checking the potential losses instead of the overall volatility – unlike the Sharpe ratio. Therefore, by ruling out the influences of the upside volatility, the true performance of a certain investment is determined.
63. EBITA
EBITA, short for Earnings before Interest Taxes and Amortization, is a formula that calculates the operational profitability of a company by including the costs of the equipment – and excluding the financing costs.
64. Times interest Earned Ratio
Also called the interest coverage ratio sometimes, the times interest earned ratio is a coverage ratio. It can calculate the proportionate amount of earnings that can be used in the future, in order to cover expenses for interest.
However, sometimes it’s considered a solvency ratio too, and that’s because it can estimate how able a company is to make interest and debt service payments. Interest payments are treated as a fixed expense that’s ongoing, considering they are, most of the times, made for the long-term.
Just like with most fixed expenses, if a firm is not able to make payments, it could lead to bankruptcy and, thus, to the company’s end. Therefore, this is why it could also be considered a solvency ratio.
65. EBIT
Shortened from Earnings before Interest and Taxes, and also referred to as the operating income, EBIT is an equation that measures the operating profits of a particular company. It does so by subtracting the operating expenses and cost of goods that were sold from the total revenue of the company.
This calculation tells you exactly the profit that a company brings only from its operation – without taking into consideration the taxes and interest. This is also why so many people refer to it as operating profit or operating earnings.
66. Treynor Ratio
Also known as the reward to volatility ratio sometimes, the Treynor ratio is basically a risk assessment formula. It can estimate the volatility in the market to calculate an investment’s adjusted risk value. So, it is usually used by investors to calculate how big the risk is for certain investments concerning the market’s volatility.
67. DuPont Analysis
Also referred to as the “DuPont model,” this financial ratio involves the ROE (return on equity) ratio – which is directly related to the company’s ability to increase its equity.
The DuPont Analysis is generally concerned with three return on equity ratio components: the profit margin, the financial leverage, and the total asset turnover. Based on how well these three perform, the company may increase its return on equity ratio.
68. Dividend Yield
The purpose of the dividend yield is to express how many dividends are paid out each year from within the company. This financial ratio is calculated directly against its share price after a division of the monetary sum of dividends by its value on the market per every share. The dividend yield appears as a percentage.
69. WACC
Weighted Average Cost of Capital (WACC) is a financial ratio used to estimate a firm’s financing and assets acquiring costs. It is calculated by comparing the equity structure and debt of the business.
It basically denotes how much the weight of the debt is, as well as the price of raising funds and borrowing money through equity to finance new capital purchases. It’s all based on the firm’s present equity structure and debs.
70. Dividend Payout Ratio
The Dividend Payout Ratio (DPR) is the dividend amount that has been given to shareholders as payment, in direct relation with the net income amount generated by the company. It is the unit measuring the net income percentage, which will be paid to the shareholders as dividends. The higher the percentage, the more prosperous the company is.
71. Working Capital Ratio
Also called the current ratio, the working capital ratio is a liquidity ratio, and it’s used to estimate a company’s ability to repay its current liabilities with current assets. It shows a firm’s liquidity.
72. Z-Score
Z-Score is an estimation of the number of standard deviations a point is away from the mean of its data set. It is sometimes called standard score, and overall it means that it measures the standard deviations a data point is below or above the mean population.
Its use is to compare the data points from multiple data sets in order to find correlations. The score can either result in zero, positive or negative. A zero score indicates that it’s average, so it’s the same as the mean. A negative one shows how far below the mean a point is on the distribution curve. A positive one shows how far above the mean a point is on it.
73. Defensive Interval Ratio (DIR)
The defensive interval ratio is considered to be one of the most valuable liquidity ratios. It focuses on calculating how many days it takes for a company to pay for its operating expenses by utilizing its most liquid assets, without reaching external financing resources.
74. Debt to Income Ratio
The debt to income ratio is a personal finance instrument that measures your amount of debt in comparison with your monthly income. Hence, it indicates the percentage of your income that is directed towards making monthly payments for loans or mortgages.
75. Debt to equity ratio
The debt to equity ratio compares a firm’s total debt in relation to its total equity. The debt to equity ratio displays the percentage of company financing that is derived from creditors and investors. If the debt to equity ratio is high, it would mean that there is a higher amount of creditor financing (bank loans) used than investor (shareholders) financing.
76. Debt to capital ratio
The debt to capital ratio measures a company’s strategy when it comes to using its financial leverage. More specifically, it compares its total obligations in relation to the total capital i.e. the proportion of debt a firm utilizes for financing its operations, in comparison with its capital. It measures the risk level associated with a firm and analyzes how effectively a company handles its downturn sales.
77. Debt to asset ratio
The debt to asset ratio could be defined as a leverage ratio, calculating the total amount of assets financed by creditors, as opposed to investors. That is to say, it indicates the percentage of assets that is funded by borrowing, in relation to the percentage of resources that are specifically funded by the investors. Essentially, it points out the way in which a company has grown and developed over time when it comes to acquiring assets.
78. Debt Service Coverage Ratio (DSCR)
The debt service coverage ratio determines a company’s capability of covering its debt by comparing its debt obligations in relation to its net operating income. Therefore, it assesses the company’s available cash, comparing it with its current principle, cash and sinking fund obligations.
Distinct from the debt ratio, the debt service coverage ratio factors in all the expenses associated with debt, including interest expense, and others such as sinking fund obligation or pension.
79. Debt Ratio
Debt ratio is a solvency ratio, whose purpose is to measure a company’s total liabilities as a given percentage of its total number of assets. In theory, the debt ratio clearly displays a firm’s financial capability of paying debt with its assets. Therefore, this points how many assets a company has to sell in order to cover its liabilities.
80. Inventory Turnover Ratio
The inventory turnover ratio is an efficiency ratio that is used to determine whether the inventory of a business is managed in an efficient manner or not.
It is calculated by comparing the cost of goods sold with the average inventory for a certain period of time. The result will show us how many times on average is the inventory sold, or turned, during a period. In short, this ratio rounds up the times a company has managed to sell its average inventory during a year when compared to the dollar amount of the average inventory.
81. Days Sales in Inventory
Days Sales in Inventory, also known as Days Inventory Outstanding or just Days in Inventory, is calculated to determine how many days it will take for your company to sell its entire inventory. This financial ratio is used to determine how long a company’s stock of items will last.
82. Days Payable Outstanding
This financial ratio compares the cost of sales, accounts payable, and the number of bills that remain unpaid in order to calculate the average time in which a company pays its invoices and bills to vendors or other companies.
The days payable outstanding (DPO) ratio is usually measured on an annual or quarterly basis in order to determine how the cash flow balances of a certain company are being managed. This basically means that the company will be able to do more things with the money that’s supposed to go into its bills.
83. Current Ratio
The current ratio refers to a company’s ability to use its current assets in order to pay off its short-term liabilities. This ratio is labeled as an efficiency and liquidity ratio, and it is also an important measure of the latter mentioned liquidity as the short-term liabilities are due mostly within the next year. If their current ratio is large enough, it means that they can easily round up some funds and pay their debts.
84. Cost of Goods Sold
Also abbreviated as COGS, the cost of goods sold measures the direct costs that were sustained during the production of products sold during a certain period. In short, this managerial calculation determines how much the company spent on materials, labor, and overhead to purchase or manufacture those products that were sold during the year.
It does not include the expenses sustained to make the products that have not yet been sold – only the cost of the products that have been successfully sold is taken into account.
85. Contribution Margin
The difference between a company’s total sales revenue and variable costs is also known as a contribution margin. Sometimes used as a ratio, it shows the amount by which variable costs are exceeded by sales. The result is a sales amount that can help to pay off fixed costs – either entirely or just as a contribution to this. Contribution margin is basically the difference that comes as a result of the comparison of fixed and variable costs.
86. Cash Ratio
A company’s ability to pay off its current obligations with cash equivalents or cash only is determined with the help of the cash ratio, also known as cash coverage ratio. Naturally, this type of ratio is more restrictive than the quick or current ratio, because the company can use no other assets to pay off its current debt.
87. Cash Flow Coverage Ratio
This ability of a company to pay off its obligations with the operating cash flows it has is measured with the help of a liquidity ratio that’s known as cash flow coverage.
The ratio shows if a company is able to pay off its current expenses or debt with its cash flow from operations. It shows the available amount of money for a certain company to meet its current obligations, such as interest on short-term notes, rent, and preferred dividends. It is a visualization of current liquidity.
88. Cash Earnings/Share
A company’s financial performance can be measured using a profitability ratio, namely Cash EPS, which is more commonly known as Cash Earnings per Share. This ratio calculates the cash flows on a per share basis.
By ignoring all of the non-cash items that impact the normal Earning per Share, the Cash Earning per Share provides the analyst with the real earnings that are generated by a business.
89. The Cash Conversion Cycle
Cash conversion cycle focuses on measuring the amount of time a company needs to convert investments in inventory. It determines how long the cash is tied to inventory before it generates revenue.
The cash cycle features three distinct parts – the current inventory level, outlining the amount of time it takes a company to sell inventory; the current sales as well as the time it takes in order to collect the cash from the sales; and the current outstanding payables. In other words, it outlines how much a company owes its existing vendors for both inventory and goods purchases.
90. Accumulated Depreciation Ratio
Accumulated depreciation ratio is a fixed assets ratio that calculates the value, age, and usefulness of the fixed assets present on a firm’s balance sheet. These are compared in relation to the total amount of depreciation taken on by those assets considering the total carrying costs.
The accumulated depreciation is a contra asset account that entails the value lost on a given asset over the course of time, as it ages and its usefulness diminishes. By comparing and contrasting the value of the assets, a firm can assess their current value, and, most importantly, the existing useful value of the given assets.
91. The Capitalization Ratio
The capitalization ratio, also referred to as the cap ratio, represents a financial ratio that measures a firm’s solvency by calculating the total amount of debt of a company. More specifically, it calculates the company’s financial leverage by comparing and contrasting the total debt with the total equity or a section of equity. There are three primary types of capitalization ratios that are most common, namely the debt to equity ratio, the long-term debt ratio, and the debt to capitalization ratio.
92. CAGR
The percentage of an investment, in terms of it increasing and decreasing year over year, is determined with the financial investment calculation that’s known as Compound Annual Growth Rate (CAGR).
It can be compared with the annual average rate of return for a certain investment made by your company over a set period of time. As most annual returns of investments usually vary, the results of the CAGR equation are labeled as the returns of good and bad years – the latter two are put into one single return percentage that management and investors will analyze when making financial decisions.
93. Break-Even Point Analysis
The break-even point analysis represents a measurement system that determines the margin of safety by comparing the revenues or units that have to be sold to cover both fixed and variable costs linked with making the sales. Specifically, this ratio is a means of calculating the potential profitability of a project, by equating the total revenues with the total expenses.
94. Average Payment Period
Also known as an important solvency ratio, the average payment period (APP) assesses how much time it takes for a business to pay its vendors, in the case of purchases made on credit. It provides insight into a firm’s cash flow and creditworthiness.
95. Average Inventory Ratio
The average inventory ratio is known as a usage ratio that specifically calculates how much time it takes a firm to sell its inventory. It points to the amount of time the inventory is likely to remain unsold. So, this ratio is considered to be an efficiency ratio.
96. Asset Turnover Ratio
The asset turnover ratio is a widely used efficiency ratio that analyzes a company’s capability to generate sales. It accomplishes this by comparing the average total assets to the net sales of a company. Expressly, this ratio displays how efficiently a company can utilize this in an attempt to generate sales.
To be more precise, the total asset turnover ratio calculates net sales as a given percentage of assets, in an attempt to outline how much sales are generated from each asset owned by the company.