Financial KPI Categories7/10/2018
Once an organisation has determined its value proposition, it may select KPIs that are aligned with its financial objectives. Financial KPIs allow managers to determine if their organisation is generating sufficient revenue and profits. [1]
A study by Peavler (2017) explains how financial ratios may be classified under the following categories:
Liquidity Ratios
1. Defining Liquidity or Solvency Ratios
Liquidity or solvency ratios estimate an organisation’s ability to fulfil its short-term debt obligations. They consider an organisation’s current assets and current liabilities, which may be found on its balance sheet. [3] The most common liquidity ratios are:
2. Examples of Liquidity Ratios
Days Sales Outstanding (DSO):
Days Payable:
Current Ratio:
Quick Ratio:
Cash Turnover:
Financial Leverage or Debt Ratios
1. Defining Leveraging Ratios
An organisation’s financial leverage or debt ratios measure an organisation’s ability to fulfil its long-term debt obligations. These indicators consider the organisation’s long term liabilities (e.g. bonds), measure the company’s overall financial health, and quantify its shareholder equity. [12] 2. Examples of Leveraging Ratios Shareholder Equity Ratio
Debt Ratio
Asset Efficiency Ratios
1. Defining Asset Utilisation Ratios
Asset efficiency ratios determine how effectively an organisation uses its assets to sell its products and services. These indicators focus on the organisation’s sales and assets, which are respectively documented on its income statement and balance sheet. The organisation’s asset efficiency ratios may determine the following:
2. Examples of Asset Utilisation Ratios Return on Capital:
Current Asset Turnover:
Return on Assets:
Profitability Ratios
1. Defining Profitability Ratios
Profitability ratios consider an organisation’s ability to generate substantial returns on its assets and equity. These indicators may address the following considerations:
2. Examples of Profitability Ratios Gross Margin
Net Margin
Sales Variance
Market Value Ratio
1. Defining Market Value Ratios
Market value ratios relate to an organisation’s stock price. As such, they may only be calculated for publicly traded companies. [23] These ratios may be used to determine if an organisation’s shares are overvalued or undervalued. [24] 2. Examples of Market Value Ratios Inventory to Asset
Inventory Turnover
Rate of Return
references
[1] Karlson, K. (2016). 29 Popular Financial KPIs for your Financial KPI Dashboard. Retrieved from https://www.scoro.com/blog/financial-kpis-for-financial-kpi-dashboard/
[2] Peavler, R. (2017). What Are the Categories of Financial Ratios? Retrieved from Peavler, R. (2017). What Are the Categories of Financial Ratios? Retrieved from https://www.thebalancesmb.com/categories-of-financial-ratios-393217 [3] Peavler, R. (2017). What Are the Categories of Financial Ratios? Retrieved from Peavler, R. (2017). What Are the Categories of Financial Ratios? Retrieved from https://www.thebalancesmb.com/categories-of-financial-ratios-393217 [4] Investopedia. (n.d.). Current Ratio. Retrieved from https://www.investopedia.com/terms/c/currentratio.asp [5] Investopedia. (n.d.). Quick Ratio. Retrieved from https://www.investopedia.com/terms/q/quickratio.asp [6] Investopedia. (n.d.). Burn Rate Retrieved from https://www.investopedia.com/terms/b/burnrate.asp [7] Investopedia. (n.d.). Days Sales Outstanding (DSO) Retrieved from https://www.investopedia.com/terms/d/dso.asp [8] Investopedia. (n.d.). Days Payable Outstanding (DPO). Retrieved from https://www.investopedia.com/terms/d/dpo.asp [9] Investopedia. (n.d.). Current Ratio. Retrieved from https://www.investopedia.com/terms/c/currentratio.asp [10] Investopedia. (n.d.). Quick Ratio. Retrieved from https://www.investopedia.com/terms/q/quickratio.asp [11] https://ycharts.com/glossary/terms/cash_turnover [12] Peavler, R. (2017). What Are the Categories of Financial Ratios? Retrieved from https://www.thebalancesmb.com/categories-of-financial-ratios-393217 [13] Investopedia. (n.d.). Shareholder Equity. Retrieved from https://www.investopedia.com/terms/s/shareholderequityratio.asp [14] Investopedia. (n.d.). Debt Ratio. Retrieved from https://www.investopedia.com/terms/d/debtratio.asp [15] Peavler, R. (2017). What Are the Categories of Financial Ratios? Retrieved from https://www.thebalancesmb.com/categories-of-financial-ratios-393217 [16] Investopedia. (n.d.). Return of Capital Retrieved from https://www.investopedia.com/terms/r/returnofcapital.asp [17] Finstanon. (n.d.). Current Asset Turnover. Retrieved from https://www.finstanon.com/ratios-dictionary/74-current-asset-turnover [18] Investopedia. (n.d.). Return on Assets Retrieved from https://www.investopedia.com/terms/r/returnonassets.asp [19] Peavler, R. (2017). What Are the Categories of Financial Ratios? Retrieved from https://www.thebalancesmb.com/categories-of-financial-ratios-393217 [20] Investopedia. (n.d.). Gross Margin. Retrieved from https://www.investopedia.com/terms/g/grossmargin.asp [21] Investopedia. (n.d.). Net Margin. Retrieved from https://www.investopedia.com/terms/n/net_margin.asp [22] Accounting Tools. (2018). Sales Variance. Retrieved from https://www.accountingtools.com/articles/what-is-a-sales-variance.html [23] Peavler, R. (2017). What Are the Categories of Financial Ratios? Retrieved from https://www.thebalancesmb.com/categories-of-financial-ratios-393217 [24] Accounting Tools. (2017). Market Value Ratios. Retrieved from https://www.accountingtools.com/articles/market-value-ratios.html [25] Inc. (n.d.). Financial Ratios. Retrieved from https://www.inc.com/encyclopedia/financial-ratios.html [26] Investopedia. (n.d.). Inventory Turnover. Retrieved from https://www.investopedia.com/terms/i/inventoryturnover.asp [27] Investopedia. (n.d.). Rate of Return. Retrieved from https://www.investopedia.com/terms/r/rateofreturn.asp
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