Optimizing Financial Success: Essential KPIs For An Effective CFO Dashboard

• Financial
• Aug 03, 2023

Understanding CFO KPIs (Key Performance Indicators) requires a closer look at the two major tasks that CFOs deal regularly- financial reporting and making financial decisions. To conduct these tasks effectively, a specific set of financial KPIs are utilized as a standard practice.

These CFO KPIs are a quantitative measure of the financial performance of a business and assist the CFOs to make more informed decisions.

Here is a list of some of the key indicators:

1. Quick Ratio – One of the most used CFO KPIs, the quick ratio provides a rapid assessment of a company's financial health. It measures the company's ability to meet short-term financial obligations immediately. Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities.

1. Current Ratio – This CFO metric complements the quick ratio, assessing a company's financial well-being over a longer time horizon. It gauges the company's ability to pay its obligations within one year.

1. Working Capital – CFOs closely monitor their company's working capital as it indicates the funds available for expansion. It is valuable when evaluating aggressive growth opportunities, as a cash-strapped company is not considered viable.

1. Operating Cash Flow – This financial metric reflects the cash flow generated from day-to-day operations. CFOs utilize this information for making CAPEX decisions, and positive cash flow is attractive to creditors providing external financing for CAPEX.

1. EBITDA & EBITDA Growth – Earnings Before Interest, Taxes, Depreciation, and Amortization is a critical quarterly metric in CFO reporting. It serves as a substitute for net income, eliminating any strategic accounting biases.

1. Return on Equity (ROE) – A key metric for investors and business owners, ROE assesses how efficiently shareholders' equity is being utilized. It is essential for CFO reporting and enables comparisons of financial performance within the industry.

1. Total-Debt-to-Equity Ratio – CFOs analyse this metric, which compares a company's liabilities to its shareholders' equity, to evaluate potential over-extension. While large debt during expansion is normal, an economic downturn could lead to bankruptcy.

1. Accounts Payable Turnover – This financial metric serves as a leading indicator of a company's financial health. It measures the time taken to pay suppliers, and a decreasing ratio may indicate cash flow issues, while an increasing ratio can highlight inefficient resource allocation.

1. Cash Conversion Cycle (CCC) – Monitoring the cash conversion cycle is crucial for CFOs, as it measures the time required to convert goods back to cash. It aids in cash flow analysis and inventory management and is composed of three other financial metrics, best tracked using financial KPI software. CCC = Days of Inventory Outstanding + Days Sales Outstanding – Days Payables Outstanding.

1. Gross Profit Margin – This essential CFO metric assesses a company's financial health by examining its sales and removing the cost of goods sold (COGS) from the revenue, expressed as a percentage of revenue. It determines a company's profitability, and a fluctuating gross profit margin may indicate poor management.

1. Earnings Per Share (EPS) – A critical CFO reporting metric, EPS tells investors how much money each of their shares is making. It facilitates comparisons between companies regardless of industry. EPS = (Net Income – Preferred Dividends) / (End-of-Period Common Shares Outstanding)

1. Compound Average Growth Rate (CAGR) – This CFO metric is particularly important in quarterly reports, showing compound growth achieved over a specific period, whether positive or negative.

1. Employee Count – This CFO KPI tracks the number of full-time and part-time employees on the payroll. It helps determine performance metrics per employee and illustrates how labor costs impact financial performance.

1. Interest Coverage Ratio – This metric provides insight into a company's financial health from two perspectives: analysing debt levels and profitability. Lenders often use it to assess the risk associated with a loan. A high coverage ratio indicates a low-risk loan, while a low ratio could lead to rejection. Interest Coverage = EBIT / Interest Expense.

It is of utmost importance to not only understand which KPIs to utilize for a CFO dashboard, but robust data collection, processing, and visualization is just as essential. Connect with Jazaa Business Services to aid you in making sense of the numbers-reach out to us @ www.jazaa.in for CFO services.