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Business performance is assessed by examining key indicators and statistics. So we do not pay attention to emotions, inner voice or external inspirations in making decisions. In fact, these are key performance indicators that describe the quality and quantity of work and will be used as a powerful tool for business management and strategic decision making. Statistics obtained from tracking and recording performance indicators play a vital role for a manager in monitoring the company’s performance and get the expected output from the process.
In this article, we are going to introduce some of the most important and practical key performance indicators that are used for both startups and giant businesses operating globally. Of course, all of the criteria we look at in this article will be related to the financial sector, and including subjects such as profit, capital, cash, and so on.
The first key performance indicator : The return on equity
Return on equity is a measure of whether or not a shareholder’s investment has ultimately benefited them. This indicator shows the efficiency of the company and determines how successful we have been in managing financial resources.
The second indicator: net profit margin
Net profit margin is a criterion that determines the percentage of profit earned per unit of income from a company’s activity. Therefore, with the help of net profit margin, the amount of profit from the company’s activity can be determined.
The third indicator: Quick Ratio
Quick Ratio determines the speed at which a company’s capital is converted into cash to pay off all debts. In this index, the ratio of current assets to current liabilities is obtained. The best way for a company to get an instant ratio is between 1.5 and 3. In this case, the company will have maximum flexibility to pay off debts.
The fourth indicator : The Debt-to-equity ratio
As the name implies, the total debt of the company is divided into the total shareholders’ equity to calculate it. This indicator shows what tools the company uses to expand and grow. In fact, the higher the ratio, the more likely the company prefers to gain its capital through debts. In general, the higher debt-to-equity ratio is in favor of the company (if the company is profitable) and the lower the risk in business would be.
The fifth indicator: Business valuation
The main difference between the valuation index and other key performance indicators is that valuation is not achieved unilaterally by considering a specific equation, but all aspects of a business have their own role in determining it. There are a variety of valuation methods, such as discounted cash flow (DCF), balanced scorecard, venture capital, and so on. Therefore, in general, it can be said that valuation is a complete and multidimensional criterion, and like other introduced indicators, it is not a ratio or statistic related to the performance of a part of the business.
Valuation can be considered as the most important and comprehensive criterion for measuring the company’s performance. Valuation is an indicator to guide a company on the right path for a better future. In most methods, valuation is possible only through a structured system and recording a large amount of data. However, there are ways to do valuation very quickly and accurately.
Since valuation is one of the most complete criteria for measuring the performance of any business, it is best for each business to constantly calculate this indicator and monitor its growth. Of course, valuation is a relatively complex process that is best done by experienced experts. Having too much detail, such as company performance records, staff, workplace, etc. helps to have a comprehensive valuation on the one hand, but makes the calculations difficult on the other hand. In addition, the appropriate method of valuation should be utilized according to the goals of the company and other items that require a lot of experience in the valuation process. To do this, you can get help from Retiba. Retiba experts have been valuing large and small companies for many years, and they can guide and accompany you in this process, so that in the end, with the right decisions and timely reforms, the company will be able to grow and develop more and more.
The most practical example of these key performance indicators is the determination of a company’s profitability in three months periods by the financial manager or monitoring the net promoters score over the life of a product by the marketing manager. (The net promoter score is actually an index to measure how much a customer is likely to recommend your product or service to others on a scale of 0 to 10).
There are many criteria and indicators, each of which in turn helps to analyze different aspects of the company’s performance. Fortunately, a company does not need to use all of these indicators. Some of these indicators are more practical than others and can better evaluate business health. These indicators are key performance indicators that cover a variety of business aspects, from search engine optimization (Internet-based businesses) to sales, supply chain, and even financial strategies.