Financial Key Performance Indicators (Financial KPIs) help any organization to measure their performance irrespective of size. These critical components helps the stakeholders, investors both potential and current, current stock holders and customers assess the performance. These are very critical components of any business intelligence platforms that needs to be deployed to help companies know the accurate, relevant information that can make the difference. By providing critical information backed with the right and relvant data , executives can crucial decision to improve the viability and profitability of the organization.
Net Profit Margin – This Financial KPI helps to understand how much profit is generated on each dollar spent. The ratio involved is just Net Income divided by Sales. Keep in mind that always a higher profit margin doesnt means its good as a low margin can indicate pricing strategy and/or the impact competition has on margins. Also this ratio is not useful for companies losing money since they have no profit.
Return on Equity – This Financial KPI helps measure organization profitability by the ability to generate profit for each unit of stakeholder equity. A high ROE tells that the company is able to grow from its existing investments and is calculated by net income divided by shareholders’ equity. Keep in mind, if new shares are issued a weighted average of the numbers of shares throughtout the year should be used. Rather than showing one year average ROE, its better to get a historical snapshot that provides 5 to 10 years worth of information.