The corporate landscape is constantly changing, but recent technological advancements have amplified the progress even further. AI is now firmly entrenched in the financial sector, and data and analytics are more comprehensive than ever before.
But with so much to track, it’s easy to get lost in the numbers.
It is critical to track the right financial metrics—those that improve decision-making, enhance profitability, and encourage business growth.
Below, we’ve listed six vital financial metrics every corporate executive should monitor. Once you’ve got your finger on the pulse of these metrics, so to speak, you’ll gain invaluable insights into your business.
1. Revenue Growth Rate
The revenue growth rate measures a company’s sales increase over a specific period. To calculate our growth rate percentage, subtract the previous period’s revenue from your current revenue. Then, divide it by the previous period’s revenue and multiply the total by 100.
Suppose your company increased from $1 million to $1.2 million from one business year to the next. Let’s do the math:
(1,200,000 – 1,000,000) ÷ 1,000,000 ✕ 100 = 20
As you can see, this particular company’s revenue growth rate was 20%. High growth rates signal successful customer acquisition and market penetration, while stagnant or declining rates may require immediate attention to underlying issues. To ensure accurate measurement, choose a reliable data analytics provider.
This is a critical finance metric, and with consistent tracking, executives can identify trends, adjust marketing strategies, and allocate resources more effectively.
2. Profit Margins
Your profit margins show how much of a profit your company generates. The metric is presented as a percentage.
There are three types of profit worth tracking:
- Gross Profit Margin, which indicates business profitability after removing production costs.
- Operating Profit Margin reflects your company’s efficiency and ability to manage operating expenses.
- Lastly, the Net Profit Margin demonstrates the final profitability after subtracting all expenses, taxes, and interest.
These margins are crucial when assessing your business’s financial health. For example, industries like software often boast high net profit margins due to low production costs, while retail businesses typically operate on thinner margins.
By comparing profit margins with industry averages, executives can identify areas for improvement and optimize pricing strategies or cost management.
3. Client Lifecycle Value (CLV)
Client Lifecycle Value (CLV) measures the total revenue a business expects to earn from a customer throughout their time with the company.
Having a high CLV signals good client retention and engagement, a major indicator of good business.
Executives can optimize CLV by utilizing client lifecycle management tools to streamline customer onboarding, increase customer retention, and enhance engagement strategies. A powerful client lifecycle management platform simplifies complex processes and helps organizations strengthen long-term client relationships.
By increasing CLV, customer acquisition costs can be reduced, and sustainable revenue growth can be achieved—a major win for any executive.
4. Operating Cash Flow
Operating cash flow is the cash a company generates from its core operations. It showcases a company’s liquidity and operational efficiency. Unlike net income, which includes non-cash items, operating cash flow provides a clear picture of a business’s ability to fund daily activities.
Companies that struggle with poor cash flow often face challenges like delayed payroll. They also miss growth opportunities.
Maintaining a healthy operating cash flow is necessary for financial stability and long-term strategic initiatives—which is why it’s such an important metric to track.
When metrics show a downward trend, there are ways to improve cash flow. Accelerate accounts receivable collections, optimize business inventory levels, and aim to negotiate more favorable contracts with suppliers and vendors.
5. Debt-to-Equity Ratio
The debt-to-equity ratio is your company’s financial leverage. The ratio is determined by comparing your business’ total liabilities to shareholder equity.
A high ratio indicates a heavy reliance on debt and increases the company’s financial risk. A low ratio, on the other hand, suggests a more stable financial position. However, it’s important to consider your sector, as healthy debt-to-equity ratios differ across industries.
For example, a tech startup might have a high debt-to-equity ratio due to initial capital investments, but reducing debt becomes critical for sustainable growth as it matures.
Monitoring this metric helps executives balance debt and equity, which is essential for a company to weather economic downturns and capitalize on new opportunities.
6. Return on Investment (ROI)
Return on Investment, shortened to ROI, evaluates the profitability of projects or investments. To calculate ROI, divide the net profit from an investment by its cost and multiply by 100.
If a marketing campaign costs $50,000 and generates $150,000 in revenue, the ROI would be 200%. The higher the return on investment, the better for executives. This means the company made back its spending multiple times.
This metric plays a vital role in strategic decision-making and helps executives prioritize high-impact initiatives with high ROI. Modern tools like project management software can automate ROI tracking, helping executives objectively manage investments and reallocate resources for maximum returns.