Building KPI Reports for Profitability Analysis

KPIs (Key Performance Indicators) are a measure of the company’s performance. KPIs may be used to evaluate the company’s performance overall, or within a particular area.

KPIs are quantifiable and can be used to measure whether strategic goals are being met or not. There are no standard KPIs and these need to be customized according to the industry and the company’s strategy and policy as well.

Choosing the right KPIs is vital to be able to make an accurate assessment of performance. KPIs for finance will be thus different from those set for sales.

Defining KPIs involves a two-way process where the KPI is named along with the group or area that is to be evaluated. Process organization or formulating a business process is thus integral to setting KPIs in the first place. Once process is in place, operations can follow smoothly and performance measurement becomes easier.

Analyzing profitability through KPIs

KPIs are set according to different areas within an organization. As a result, an assessment of the KPI for that area, for example Sales, will provide a good idea of the performance within Sales.

Some common finance KPIs which can be used to review profitability are:

1. Cash flow analysis: Your cash flow is a good indicator of profitability. Cash flow differs from profit figures because profit is often a figure that is owed to you and not available for immediate expenses.
2. Expenses incurred: Tracking expenses incurred by the business provides an indication of where your money is going. For the purpose of KPIs, create a spreadsheet with all expenses such as those for labor and production and also make columns detailing taxes on each. For expenses incurred monthly, this will provide an approximate idea on which month has the highest spending.
3. Debt/Asset ratio: Your debt/asset ratio reveals how much of your assets actually belong to you. Mostly, the business balance sheet will already present you with a debt/asset calculation. However, you can also divide the sum of all your debts (liabilities) by the sum of the assets you own. This will provide you with the debt/asset ratio.
   Your ratio should indicate that you own most of your business, especially over a period of time.
4. Product turnover ratio: If you are in the business of production, this figure gives a clear idea of how long your products are sitting on the shelf before they get sold. To arrive at this ratio, you need to divide the cost of goods sold within a time period, say a month or even a year. Divide this figure by the inventory for the same time period. The larger your figure, the lesser time your products are spending on the shelf. To ensure higher profits, you should be able to judge market demand better.

Financial data processing

Though this can be done manually by using spreadsheets, financial software can do a more accurate and reliable job. Furthermore, the right financial software also possesses efficient processing and analysis tools so you get accurate reviews from your business data.

At Analytix Solutions, we have significant experience in assisting companies in developing better business plans and boosting profitability through smart goal setting. For more information on our services, please visit us at https://www.analytixaccounting.com or email us at sales@analytix.com.

Written by

Analytix Editorial Team