Forecasting and reporting
Financial KPIs
Choose a small set of KPIs that answer management's questions, define them precisely, and calculate them consistently.
Learning objectives
- Choose KPIs that match a business question and its drivers
- Define and calculate growth, margin, productivity, efficiency and cash KPIs
- Interpret KPI movements and spot when a headline number misleads
A management pack can't show every number. Key performance indicators (KPIs) are the handful of measures that tell management whether the business is on track and where to look when it isn't. Good KPIs are tied to a decision, precisely defined (so the number means the same thing every month), comparable over time and against budget, and few. Rawdah Home Retail Co. is a fictional retailer; all figures are illustrative.
For a retailer like Rawdah, a balanced set covers growth (revenue growth, like-for-like sales), profitability (gross and EBITDA margins), productivity (revenue per store, sales per square metre), efficiency (inventory days) and cash (cash conversion).
Revenue per average store = Revenue ÷ ((Stores start + Stores end) ÷ 2); Sales per sq m = Revenue ÷ (Average stores × Area per store); Inventory days = Inventory ÷ COGS × 365; Cash conversion = CFO ÷ EBITDA
- Average stores
- stores open and close during the year, so use the average of the opening and closing counts
- Inventory days
- how many days of cost of sales are sitting in stock
- CFO
- cash from operations; cash conversion below 100% means profit isn't turning into cash
Included with a Formula Quest membership
The rest of this lesson is for members. Members get the full lesson, including its 3 graded exercises, and every other Finance Quest lesson.
That's the last lesson in Financial Planning and Analysis
Prove what you've learned with this track's assessed work — it counts towards your certificate.