Key Performance Indicators (KPIs) are critical tools used by organizations to calculate their performance and track progress toward their goals. Accounting KPIs are specific metrics used to evaluate a company’s financial health and performance.
Well, if you work in accounting, I would like to recommend you below 13 financial KPIs for accounting.
1. Accounts Receivable Turnover
This means measuring how quickly a firm collects outstanding debts from its customers. It’s formula is as follows.
Accounts Receivable Turnover = Net Credit / Average Accounts Receivable
2. Return on Assets (ROA)
This means calculating how efficiently an organization uses its assets to gain profits.
ROA = Net Income / Total Assets
3. Return on Equity (ROE)
This means measuring the profit an organization earns with the money the that shareholders have invested.
ROE = Net Income / Total Equity
4. Accounts Payable Turnover
This means measuring how quickly an organization pays its creditors and suppliers.
Accounts Payable Turnover = Total Supplier Credit Purchases / Average Accounts Payable
5. Working Capital Ratio
This means measuring a business’s ability to meet its short-term financial obligations
Working Capital Ratio = Current Assets / Current Liabilities
6. Debt-to-Equity Ratio
This means measuring the proportion of a business’s financing that comes from debt versus equity.
Debt-to-Equity Ratio = Total Debt / Total Equity
7. Gross Profit Margin
This means calculating the percentage of cash left over from product sales after deducting cost of goods sold (COGS).
Gross Profit Margin = (Revenue – Cost of Goods Sold) / Revenue
8. Net Profit Margin
This means measuring the percentage of cash left over from sales after deducting all expenses, including taxes.
Net Profit Margin = Net Income / Revenue
9. Inventory Turnover
This means measuring the rate inventory is either sold, used or replaced during a period.
Inventory Turnover = Cost of Goods Sold / Average Inventory
10. Fixed Asset Turnover
This means calculating how effectively a business uses its fixed assets to generate sales.
Fixed Asset Turnover = Revenue / Net Fixed Assets
11. Operating Cash Flow Ratio
This means calculating how well a company can cover its short-term liabilities using cash generated from operations.
Operating Cash Flow Ratio = Operating Cash Flow / Current Liabilities
12. Earnings Before Interest and Taxes (EBIT) Margin
This means measuring a company’s profitability before interest and tax expenses are considered.
EBIT Margin = EBIT / Revenue
13. Quick Ratio
This means calculating a company’s ability to cover short-term obligations without relying on inventory. Quicks assets comprises of cash, marketable securities and accounts receivable only (quick assets = current assets – inventory – pre-paids).
Quick Ratio = (Current Assets – Inventory – Prepaids) / Current Liabilities
I’d love to hear what you think about this post, 13 Financial KPIs for Accounting You Should Know. Let me know in the comments or contact via the form.
