7 essential cash flow KPIs and performance metrics

The resource utilization KPI indicates how effectively a company uses its resources (time), comparing the billable time vs. non-billable work. It can also be used on a project dashboard for a better overview of project performance. According to a survey, the top 25% participants had the average of 4 budget iterations, while bottom performers are used to 9 cash flow kpis budget versions before the final approval. Our article provides a summary of all the statistics and studies available at the time of writing. In some cases, we use Artificial Intelligence for formulating the statistics. Please help us prioritize our integrations by submitting the main SaaS tools you’d like to see us integrate with first in our short poll.

To compute OCF, you start with net income, add back non-cash expenses (like depreciation), and adjust for changes in working capital. Cash Flow is the lifeblood of any business, small or large, new or established. It’s the financial fuel that keeps the operations running, and without it, even the most innovative enterprise can come to a grinding halt. And don’t forget that all-important call to your CPA to help you identify the required to build the most reliable budget and forecast.

  1. However, as a rule of thumb, a value of less than 1 may be seen as indicative of a business that cannot cover its debts with its current working capital.
  2. Working capital represents a company’s operational liquidity – the short-term assets available to cover immediate obligations.
  3. When calculating cash flow KPIs and metrics either Operating Cash Flow or Free Cash Flow can be used.
  4. FCF helps determine a company’s financial health and its ability to generate returns for stockholders.
  5. The working capital ratio is an indicator of the company’s financial strength when it comes to liquidity.
  6. Thus permitting companies monitoring DSO to appraise collections performance and adjust practices where needed so they can have better control over cash flows management processes.

Given the rapidly changing business and economic landscape, a situational analysis is recommended before beginning the budgeting process each year. Even with 2023 behind us, it is not too late to take a closer look at how your business will perform financially in 2024 and plan ahead to maximize the outcome. https://adprun.net/ This is best achieved through the annual budgeting and forecasting process, which many manufacturers and distributors overlook at year-end. First, company-wide KPIs focus on the overall business health and performance. These types of KPIs are useful for informing management of how things are going.

The working capital ratio is an indicator of the company’s financial strength when it comes to liquidity. A more than one ratio, preferably 1.5 or above, means the company is financially equipped to meet its short-term expenses. Cash from operating activities is a key indicator of your company’s ability to generate cash.

The Gross Profit Margin measures the proportion of money left over from revenue after accounting for the cost of goods sold. This metric is a great indicator of a company’s financial health, indicating whether a business is capable of paying its operating expenses while having funds left for growth. OCF shows the total amount of money generated by a company’s daily business operations. The financial metric hints whether a company can maintain a positive cash flow needed for growth or requires external financing to cope with all the expenses. The quick ratio, also known as an acid test ratio, is another type of liquidity ratio that measures a business’s ability to handle short-term obligations. The quick ratio uses only highly liquid current assets, such as cash, marketable securities, and accounts receivables, in its numerator.

Cost KPIs

One of the most important aspects of understanding cash flow from operations is to examine the key financial metrics that impact it. These metrics can help businesses identify trends, make informed decisions, and attract investors. The last of our CFO performance measures is operating cash flow, a cash flow metric detailing the total amount of money generated by daily operations, revealing either a positive or negative cash flow.

Importance of Analyzing Cash Flow from Operations

Free cash flow (FCF) shows how much money remains after supporting business activities entailed in regular operations and deducting the cost of capital expenditure from operating cash flow. It shows a truer picture of a company’s actual cash flow position, revealing the surplus funds available to reduce debt, distribute dividends or invest in growth. The Cash Flow Coverage Ratio is an essential metric for investors, as it measures a company’s ability to pay off its obligations with its operational cash flow.

How Do You Calculate Your Burn Rate?

Cash flow from operations is a measure of the cash generated or used by a company’s core operations, and it is a critical indicator of a company’s ability to generate cash. Current accounts payable is another vital cash flow metric that details the sum of all money your company owes at a given time. Compared with the other CFO financial metrics, this measurement involves your own company’s ability to pay off your creditors. Marketing costs, utilities, rent, credit payments; all of these contribute to your accounts payable total. Like CEI, current accounts payable is generally run as a short-term financial planning tool, often on a month-by-month basis.

CFOs: What Should You Track on Your Cash Flow Dashboards?

Its focus is to understand how well an organisation is managing the credit given to its customers, by measuring how long it takes to then collect the debt. Operating Cash Flow helps you to understand how much your business is earning from its normal, daily operations. The underlying objective is to get a handle on an organisation’s profit, and if there could be any issues in the long term. If you’re operating a negative cash flow, you’ll need to consider cost-cutting or identify areas of improvement. DPO is an important cash flow metric because, if it’s too low, you might be jeopardising your free cash flow or not taking advantage of available credit terms. And while a high DPO is more desirable (as it provides better short-term liquidity), there is always the risk of losing good suppliers or having restrictions placed on orders.

One of the key benefits of analyzing cash flow from operations is the ability to identify trends over time. This helps businesses understand how their cash resources are being utilized and how their financial situation is evolving. By monitoring cash flow trends, businesses can identify potential cash shortages or surpluses and take appropriate action to address them. The Cash Conversion Cycle (CCC) is a measure of how long it takes a company to convert its investments in inventory and other resources into cash. The resulting number is the number of days it takes the company to convert its investments into cash. Thus permitting companies monitoring DSO to appraise collections performance and adjust practices where needed so they can have better control over cash flows management processes.

For investors, a consistent and growing CFO signals a company’s strong financial health and its potential for long-term success. Organizations use key performance indicators (KPIs) to measure and analyze their financial health. Key examples include total revenue per employee, gross profit margin, and operating cash flow — all of which help managers assess progress towards strategic goals in order to drive growth. It ascertains whether there is enough positive or negative cash flow to pay for expenses and growth, making it critical data to track for businesses. Positive cash or free cash flow evaluates how much money the firm has available that can be used without impacting operations and investments. After multiplying this result with x number of days in that span, one will get DSO which illustrates efficiency in collecting payments from clients after making a sale.

Even if your cash balance in a month is negative, it’s best to keep your overall cash balance positive. Qualitative indicators usually measure non financial KPIs like employee and customer satisfaction. You’ll get notified when payments are due and after paying the bill, simply mark it complete, and a new task will be automatically created for the following month. Additionally, you can use formula fields to calculate the cost of a new product order or the profit you made from sales. ClickUp tracks your goal progress in real-time to help you understand how close you’re to achieving it.