Finance KPIs for SMEs
Several are shared KPIs that the Finance Head shares with the IT Head, HR Head, Sales Head, and Ops Head.
EBIT stands for earnings before interest & taxes.
EBIT = Revenue - Operating Expenses
EBITDA stands for Earnings Before Interest, Taxes, Depreciation & Amortisation.
EBITDA = Revenue - Expenses (excluding interest, tax, depreciation & amortisation)
ROI stands for Return on Investment.
ROI = (gain from Investment - cost of investment) / cost of investment
Net Income Margin
Net Income Margin measures how much profit a company makes for each dollar in revenue.
Net Income Margin = (Net Income/ Revenues) x 100
Return on Sales
Return on Sales measures how much profit a company makes for each dollar in revenue.
Return on Sales = (Net Profit / Revenues) x 100
Operating Profit Margin
Operating Profit Margin provides an indicator of the operating efficiency & / or pricing strategy of a business.
Operating Profit Margin = (Operating Profit / Revenue) x 100
ROCE stands for Return on Capital Employed & is a measure of the return a company generates from the capital invested in the business.
ROCE = EBIT / Total capital employed
ROA stands for Return on Assets & measures a company's profitability relative to the assets it owns.
ROA = (Net Income during period t / Total Assets at the end of period t) x 100
D/E Ratio stands for Debt to Equity Ratio & provides an insight into the extent to which a business is financed through debts versus equity.
Debt-to-Equity (D/E) Ratio = Total Liabilities / Total Equity
Working Capital Ratio
Working capital ratio is a measure of how much liquid assets a business has available at any given time.
Working Capital = current assets - current liabilities
Operating Expense Ratio
Operating expense ratio is an indicator of how well a company is managing the ongoing costs of operating the business.
Operating Expense Ratio = (OPEX in period t / Sales Revenue in period t) x 100
CAPEX to Sales Ratio
CAPEX to sales ratio measures the level of investments a company is making into its future.
CAPEX to Sales Ratio = (CAPEX in period t / Net Sales in period t) x 100
P/E Ratio stands for Price Earnings Ratio which provides an insight into the extent that the current share price of a company is attractive to investors.
P/E ratio = Current Price Per Share/Earnings Per Share
Customer profitability is an indicator of how much profit a business is generating from individual customers. Customer profitability is basically a measure of the net dollar contribution made by individual customers to an organisation.
Customer Lifetime Value
Customer lifetime value is an indicator of the financial value a customer provides over the lifespan of the entire customer relationship.
Return on Innovation Investment
Return on innovation investment measures the returns generated from investments in innovation.
Return on Innovation Investment = [(Net Profit from new products & services) - (innovation costs for these products & services)] / (innovation costs for these products & services)
Human Capital Value Add
Human capital value add is a measure of the extent to which employees add value to the business.
HCVA = Revenue - (Total Costs - Employment Cost) / Full Time Employees
Revenue per Employee
Revenue per employee is an indicator of how much revenue is generated per employee.
Revenue per Employee = Revenue / Number of (full time equivalent) Employees
Energy consumption is a measure of how much energy a company is consuming which can be measured by the amount of energy purchased from an energy supplier in a given period.
Saving Levels due to Conservation & Improvement Efforts
Saving levels due to conservation & improvement efforts measures the total level of savings (in carbon emissions, water usage, energy usage or costs) generated from the conservation & improvement projects identified.
Project Costs as Percentage of Revenue
Project cost as a percentage of revenue is one of the most common measures of the efficiency of project operations.
Total spend on projects (comprising hardware, software, hardware & networking costs - including outsourcing costs) as a percentage of annual revenues (sales)
Project Cost Variance
Project cost variance is an indicator of the extent to which projects are delivered within budget.
Project Cost Variance (PCV) = SPC - APC
SPC is the Scheduled Project Costs, &
APC is the Actual Project Costs
Sales Volume Projection accuracy forecast
Sales Volume Projection measures the projected or expected volumes of sales over a future period. It is basically a measure of the order book a company has plus any sales a company is sure to secure.
Direct Product Profitability
Direct Product Profitability (DPP) measures profitability by product & therefore provides insights into the differing profitability levels of the products or services a company offers.
DPP = unit sales volume x the profit margin of the product
Revenue per User
Revenue per User measures a company's profitability on a per-user basis.
RPU = Total Revenue / Total Users (Customers)
Percentage Revenue per Major Customer
Percentage revenue by major customer measures a company's profitability on a per-customer basis to establish how important individual customers are relative to the overall customer based.
Sales per Channel
Sales by channel is an indicator that breaks sales down by the channel through which the sales were generated. This provides an insight into the effectiveness of different channels such as direct sales, shops, online, etc.
Quotation Conversion Rate
Quotation conversion rate measures the success rate (percentage) a company achieves of converting quotes for business into actual orders.
Quotation Conversion Rate = (Number of Successful Quotes / Number of Quotes submitted) x 100
Up selling Success Rate
Up selling success rate measures the percentage of upselling attempts or opportunities that are successful & sales are made.
Up selling success rate = (Number of Successful Up-Sales / Number of Upselling Attempts (or Opportunities)) x 100
Cross-Selling Success Rate
Cross-Selling success rate measures the percentage of upselling attempts or opportunities that are successful & sales are made.
Cross-Selling Success Rate = (Number of Successful Cross-Sales / Number of Cross-Selling Attempts (or Opportunities)) x 100
Cost to Serve
Cost to serve (by customer or segment) is a measure that helps to understand the profitability of a customer account (or segment) by assigning costs of serving this customer based on the level of activity & overhead costs incurred by this customer.
Acquisition Retention Spending Ratio
Acquisition retention spending ratio provides companies with an insight into the amount they spend to acquire new customers compared to the amount they spend to retain. In most industries it is significantly more expensive to acquire new customers.
Acquisition Retention Spending Ratio = Spending to acquire new customers / spending to retain existing customers
Cost Avoidance Score
Cost avoidance score is a measure that helps to assess to what extent implemented cost reductions are realised. When companies embark on a cost reduction programme they need to establish whether actual savings have been made at the end of the program.