Keeping an eye on your business’s financial health isn’t just for accountants, it’s essential for making smart, confident decisions. Whether you’re looking to grow, improve profitability, or simply stay on top of cash flow, tracking the right financial KPIs (Key Performance Indicators) will give you the clarity you need.
Here are the top financial KPIs we recommend every business monitor regularly:
1. Gross Profit Margin
What it tells you: How much money you keep after covering direct costs.
Why it matters: A strong gross profit margin means your pricing and cost of goods are working in your favour.
You can work out gross profit margin using this formula: (Revenue – Cost of Goods Sold) ÷ Revenue × 100
2. Net Profit Margin
What it tells you: The percentage of revenue that remains as profit after all expenses.
Why it matters: It’s a true measure of how profitable your business is.
You can work out net profit using this formula: Net Profit ÷ Revenue × 100
3. Cash Flow
What it tells you: The movement of money in and out of your business.
Why it matters: A profitable business can still fail if cash flow is poorly managed. Positive cash flow keeps the lights on.
4. Current Ratio
What it tells you: Your ability to pay short-term obligations.
Why it matters: Lenders and investors often look at this to assess financial stability.
You can work out current ratio using this formula: Current Assets ÷ Current Liabilities
5. Debtor Days
What it tells you: How long it takes customers to pay you.
Why it matters: The longer it takes to get paid, the tighter your cash flow becomes.
You can use this formula to work out debtor days: (Trade Debtors ÷ Revenue) × 365
6. Revenue Growth Rate
What it tells you: How quickly your sales are increasing over time.
Why it matters: Healthy growth is a good indicator of demand and future potential.
You can use this formula to work out revnue growth rate: Current Period Revenue – Previous Period Revenue) ÷ Previous Period Revenue × 100
7. Operating Profit Margin
What it tells you: How efficiently your business is running day-to-day.
Why it matters: Helps you understand the performance of core business activities, before finance costs and tax.
You can work out the opertating profit margin using this formula: Operating Profit ÷ Revenue × 100
8. Break-even Point
What it tells you: The sales volume needed to cover all costs.
Why it matters: Knowing when you’ll start making a profit helps with pricing, cost control, and growth planning.
9. Return on Investment (ROI)
What it tells you: The return you get from an investment or project.
Why it matters: Useful for deciding whether a new initiative, marketing campaign, or asset purchase is worth it.
You can use the following formula to work out return on Investment: (Net Profit from Investment – Cost of Investment) ÷ Cost of Investment × 100
Final Thoughts
Financial KPIs aren’t just for reporting, they’re tools to guide better decisions. By monitoring these regularly, you’ll gain a deeper understanding of how your business is performing, where the risks are, and where to focus next.
Key Takeaways:
• Track Gross and Net Profit Margins to stay on top of profitability
• Manage Cash Flow to avoid surprises
• Keep an eye on Debtor Days to improve cash collection
• Understand your Break-even Point to plan with confidence
• Use KPIs to guide strategy and performance reviews
If you need help setting up or reviewing your financial KPIs, then contact us. At Greystone Advisory, we help business owners turn financial data into clear direction.
