5 Most Important Metrics Entrepreneurs Should be Monitoring

MOST IMPORTANT METRICS SENTREPRENEURS SHOULD BE MONITORING Cash Inflow NET CASH FLOW Trends: Use this to monitor the liquidity health of your business and analyze trends in areas beginning to run low on reserves. Provides data regarding how cash inflows have progressed over the historic period under evaluation. How do you calculate your Net Cash Flow? Cash Inflows - Cash Outflows Cash Outflow Trends: If a business has a high = NET CASH FLOW fixed cash outflow without the support of growing inflows, there is bound to be a substantial cash glut at some point. REAL REVENUE GROWTH What you really need to be concerned with is how much of the change-plus or minus- in revenues is due to real growth in additional unites of products or services. This is what we call real revenue growth. Real revenue change impacts your business's over-all operations. OPERATING EXPENSE CONTROL 10% 30% Depreciation & amortization Salaries & wages 30% Interest on indebtness Employee benefits 15% 5% Other operating expenses Only real revenue dollar changes are what actually affect the operating expenses. The second way to look for expense control is looking at the absolute dollar Expense control is used either as a percentage of revenues or an absolute dollar increase compared to the absolute dollar increase in revenues for the period being measured. It's important to note that the real revenue dollar increase is more important than the absolute dollar increase. over the year prior. RETURN ON ASSETS Assets are your firm's total assets, not just what the company owns. Return on Assets (ROA) is calculated by dividing net operating income after tax (but before other income or expenses like interest expense) by total assets. It all comes down to leverage and how it's used. Return on assets eliminates the effect of leverage, positive or negative, when a business uses debt financing - or when an individual does. Debt financing is a necessary component of any efficient finance strategy but it creates an illusion by comparing ROA and return on equity (ROE). The use of debt will either enhance or reduce the ROE but it Net Income ROA = Total Assets won't affect the ROA. NET TRADE CYCLE ALSO KNOWN AS CASH CONVERSION CYCLE The whole idea of it is how fast it takes for cash to go from the Cash Balance the regular Trade Cycle of the business Net Trade Cycle = shows how long the cash is = tied up in the trade cycle before coming back out as cash again. Sources http://www.usmansheikh.com/finance/5-key-financial-business-metrics http://thebusinessferret.com/key-financial-metrics/ http://www.portalcfo.com/key-business-financial-metrics Billy's Billing www.billysbilling.com MOST IMPORTANT METRICS SENTREPRENEURS SHOULD BE MONITORING Cash Inflow NET CASH FLOW Trends: Use this to monitor the liquidity health of your business and analyze trends in areas beginning to run low on reserves. Provides data regarding how cash inflows have progressed over the historic period under evaluation. How do you calculate your Net Cash Flow? Cash Inflows - Cash Outflows Cash Outflow Trends: If a business has a high = NET CASH FLOW fixed cash outflow without the support of growing inflows, there is bound to be a substantial cash glut at some point. REAL REVENUE GROWTH What you really need to be concerned with is how much of the change-plus or minus- in revenues is due to real growth in additional unites of products or services. This is what we call real revenue growth. Real revenue change impacts your business's over-all operations. OPERATING EXPENSE CONTROL 10% 30% Depreciation & amortization Salaries & wages 30% Interest on indebtness Employee benefits 15% 5% Other operating expenses Only real revenue dollar changes are what actually affect the operating expenses. The second way to look for expense control is looking at the absolute dollar Expense control is used either as a percentage of revenues or an absolute dollar increase compared to the absolute dollar increase in revenues for the period being measured. It's important to note that the real revenue dollar increase is more important than the absolute dollar increase. over the year prior. RETURN ON ASSETS Assets are your firm's total assets, not just what the company owns. Return on Assets (ROA) is calculated by dividing net operating income after tax (but before other income or expenses like interest expense) by total assets. It all comes down to leverage and how it's used. Return on assets eliminates the effect of leverage, positive or negative, when a business uses debt financing - or when an individual does. Debt financing is a necessary component of any efficient finance strategy but it creates an illusion by comparing ROA and return on equity (ROE). The use of debt will either enhance or reduce the ROE but it Net Income ROA = Total Assets won't affect the ROA. NET TRADE CYCLE ALSO KNOWN AS CASH CONVERSION CYCLE The whole idea of it is how fast it takes for cash to go from the Cash Balance the regular Trade Cycle of the business Net Trade Cycle = shows how long the cash is = tied up in the trade cycle before coming back out as cash again. Sources http://www.usmansheikh.com/finance/5-key-financial-business-metrics http://thebusinessferret.com/key-financial-metrics/ http://www.portalcfo.com/key-business-financial-metrics Billy's Billing www.billysbilling.com