The Importance of Tracking Key Financial Metrics: 10 Metrics Every Business Must Monitor
- Colin Murray
- Feb 17
- 4 min read
Updated: Mar 4
What gets measured gets managed. Yet, many small businesses fail to track the key financial metrics that determine their success.
Without the right data, business owners are left making decisions based on gut feelings rather than strategic insights.
Tracking financial metrics provides clarity, control, and strategic direction, allowing businesses to:
Improve profitability and cash flow.
Identify and fix financial inefficiencies.
Forecast growth and plan for long-term success.
At HighRidge CFO, we use a Strategic Financial Framework that incorporates long-term planning, budgeting, monthly financial management, KPI tracking, business performance reviews, rolling forecasts, and course correction.
By integrating financial metrics into this framework, businesses gain a clear roadmap for financial health and strategic decision-making.
This guide breaks down 10 key financial metrics you should track, how to calculate them, and how they fit into a larger financial strategy.
1. Gross Profit Margin
What It Is: The percentage of revenue left after deducting the cost of goods sold (COGS).
Why It Matters: Measures the efficiency of production and pricing strategies. A declining margin may indicate rising costs or pricing issues.
Formula: Gross Profit Margin = ((Revenue - COGS) / Revenue) x 100
How to Use It: Regularly review to ensure your pricing covers costs while maintaining competitiveness.
2. Net Profit Margin
What It Is: The percentage of revenue left after all expenses, taxes, and interest.
Why It Matters: Determines overall business profitability and long-term viability.
Formula: Net Profit Margin = (Net Income / Revenue) x 100
How to Use It: If net margins are low, review cost structure, pricing, and operational efficiencies.
3. Operating Cash Flow (OCF)
What It Is: The cash generated from normal business operations.
Why It Matters: Ensures the company can sustain itself without external financing.
Formula: OCF = Net Income + Non-Cash Expenses - Changes in Working Capital
How to Use It: Positive OCF means the business is generating enough cash to cover daily operations.
4. Accounts Receivable Turnover
What It Is: Measures how efficiently a company collects payments from customers.
Why It Matters: Slow collections can cause cash flow problems, even if the business is profitable.
Formula: ART = Net Credit Sales / Average Accounts Receivable
How to Use It: If ART is low, consider tightening payment terms or improving collection processes.
5. Accounts Payable Turnover
What It Is: Measures how efficiently a company pays its suppliers.
Why It Matters: Helps maintain good supplier relationships and optimize cash flow.
Formula: APT = Total Supplier Purchases / Average Accounts Payable
How to Use It: If APT is too high, consider renegotiating payment terms to improve cash flow.
6. Current Ratio
What It Is: Measures a company’s ability to cover short-term liabilities with short-term assets.
Why It Matters: Indicates liquidity and financial stability.
Formula: Current Ration = Current Assets / Current Liabilities
How to Use It: A ratio below 1.0 signals potential liquidity issues.
7. Debt-to-Equity Ratio
What It Is: Compares a company's total debt to its total equity.
Why It Matters: Shows financial leverage and risk level.
Formula: D/E Ratio = Total Debt / Total Equity
How to Use It: A high ratio suggests high debt reliance, which may be risky.
8. Return on Investment (ROI)
What It Is: Measures profitability relative to investment costs.
Why It Matters: Helps evaluate the effectiveness of business investments.
Formula: ROI = ((Net Profit - Investment Cost) / Investment Cost) x 100
How to Use It: Optimize marketing, hiring, and capital expenditures.
9. Burn Rate
What It Is: The rate at which a company spends capital before generating positive cash flow.
Why It Matters: Critical for startups and businesses in growth phases.
Formula: Burn Rate = (Beginning Cash Balance - Ending Cash Balance) / Number of Months
How to Use It: Helps determine how long cash reserves will last.
10. Revenue Growth Rate
What It Is: The percentage increase in revenue over time.
Why It Matters: Indicates business expansion and market demand.
Formula: RGR = ((Current Revenue - Prior Revenue) / Prior Revenue) x 100
How to Use It: Track growth trends and adjust strategies accordingly.
How to Implement Financial Metrics into Your Business Strategy
Tracking financial metrics isn’t enough—you need a system to apply them effectively.
HighRidge CFO integrates these metrics into a structured financial management process:
Use a Financial Dashboard: Fathom provides real-time visibility into key financial metrics, allowing business owners to make informed decisions quickly.
Schedule Weekly KPI Reviews: As part of monthly financial management, track progress regularly to ensure the business stays on course.
Incorporate Metrics into Business Performance Reviews: Understanding trends helps business owners pivot and make course corrections.
Adjust Rolling Forecasts and Budgets: If metrics indicate shifts in cash flow, profitability, or revenue, adjust your financial strategy accordingly.
Conclusion
Tracking key financial metrics isn’t just about numbers—it’s about making data-driven decisions that drive profitability and sustainability.
By incorporating these essential financial metrics into your business strategy, you gain deeper insight into your financial health and create a roadmap for success.
What gets measured gets improved. Start tracking these financial metrics today to take control of your business future.
Identify and Track Your Metrics
Need help tracking and optimizing your financial metrics? HighRidge CFO provides expert financial strategy, KPI tracking, and financial management solutions.
Contact us today to get started!
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